<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

   [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year Ended: December 31, 2000

                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
                      PERIOD FROM           TO          .

                          Commission File No. 0-22958
                              -------------------
                         INTERPORE INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                      95-3043318
(State or other jurisdiction of                     (I.R.S. employer
incorporation or organization)                    identification number)

181 Technology Drive, Irvine, California                 92618-2402
(Address of principal executive offices)                 (Zip code)

       Registrant's telephone number, including area code: (949) 453-3200
                              -------------------
          Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange
                                                        ---------------------
                  Title of each class                    on which registered
                  -------------------                    -------------------
                         None

          Securities registered pursuant to Section 12(g) of the Act:
                           Common stock, no par value
                              -------------------
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                 Yes [x]     No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

  As of March 15, 2001, the aggregate market value of voting stock of Interpore
International, Inc. held by non-affiliates was $40,404,000 based upon the
closing price of such stock on The Nasdaq Stock Market.  The number of shares of
common stock outstanding as of that date was 14,422,900.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of our Joint Proxy Statement for the 2001 Annual Meeting of
Stockholders of Interpore International, Inc. are incorporated by this reference
into Part III as set forth herein.

--------------------------------------------------------------------------------
<PAGE>

                                     PART I

Item 1.  Business

Overview

  We are a medical device company with a complementary combination of spinal
implant and orthobiologic technologies, an expanding product portfolio and
distribution channels specifically addressing the spinal surgery market.  Our
product portfolio addresses what we believe are two of the fastest growing areas
in the medical device industry--spinal implants and orthobiologics.

  Virtually all spine fusion procedures require the use of a bone graft and a
majority of these procedures also use spinal implants.  We offer three distinct
product lines which can be used in combination for spinal fusions: spinal
implants, synthetic bone graft materials and products used to derive growth
factors.  Because spine surgeons are the primary customers for each of our
product lines, we believe our complementary product portfolio provides
substantial cross selling opportunities to our distribution network.  We plan to
develop and commercialize new products which will allow us to offer our
customers a more comprehensive solution for spine fusion procedures.

  In the spinal implant product category, we offer the Synergy Spinal System and
the C-Tek Anterior Cervical Plate system.  Our current product offering is
applicable to thoraco-lumbar and cervical spine fusions, which we believe
represent approximately 75% of spine fusion procedures.  We believe our spinal
products in development, which include intervertebral cages, will provide us
with the products necessary to address the remaining spine fusion procedures
that utilize spinal implants.

  Our principal orthobiologic offering includes synthetic bone graft products
and AGF (Autologous Growth Factors) related products.  Our Pro Osteon products
are implanted in a bone deficit and provide a matrix that facilitates new bone
ingrowth.  Pro Osteon was the first synthetic bone graft substitute to obtain
FDA approval for orthopedic applications.  Our BonePlast is a resorbable bone
void filler that is replaced by the patient's own bone during the healing
process.  In the second quarter of 1999, we commercially launched our AGF
related products.  AGF is a concentrate of growth factors derived
intraoperatively from platelets in a patient's own blood. These growth factors
are involved in initiating the bone healing cascade. We believe AGF will have
application in a wide variety of bone and soft tissue procedures.

Spine Anatomy

  The spinal column consists of 24 separate bones called vertebrae that are
connected together to permit a normal range of motion.  The spinal cord, the
body's central nerve column, is enclosed within the spinal column.  Vertebrae
are paired into what are called motion segments that move by means of three
joints: two facet joints and one spinal disc.  The typical spine, as it relates
to spinal implants, is made up of the following four main regions:

   .  Cervical vertebrae are the first seven vertebrae in the neck;

   .  Thoracic vertebrae are the next twelve vertebrae in the chest or rib cage;

   .  Lumbar vertebrae are the next five vertebrae in the lower back; and

   .  The sacrum.

Together, the thoracic vertebrae and the lumbar vertebrae are frequently
referred to as the thoraco-lumbar region of the spine.
<PAGE>

Spine Disorders

  The following are the four major categories of spine disorders:

 .  Degenerative conditions. Degenerative conditions in the facet joints and disc
   can result in instability and impingement on the nerve roots as they exit the
   spinal canal, causing back pain or radiating pain in the arms or legs.

 .  Deformities. Deformities, such as scoliosis, are deviations in the normal
   curvature and alignment of the spine. Deformities range in severity from
   cosmetic issues through varying levels of pain, discomfort or reduced
   function.

 .  Trauma. Trauma, or injuries to the spine, if not corrected, can result in
   instability, pain, damage to the spinal cord and/or nerve roots, paralysis
   and deformity.

 .  Tumors. Tumors in the spine typically occur in the vertebral body and
   eventually result in fracture of the vertebral body, causing instability,
   pain and deformity.

Spinal Implant Market Overview

  The prescribed treatment for spine disorders depends on the severity and
duration of the disorder and the success or failure of non-operative therapies.
Non-operative therapies include bed rest, medication, lifestyle modification,
exercise, physical therapy, chiropractic care and steroid injections.  However,
non-operative treatment options are not effective in many cases, and we estimate
that over 500,000 patients undergo spinal surgery, such as spine fusions and
spinal discectomies, each year in the United States.  The number of spine fusion
procedures performed annually in the United States is estimated to exceed
300,000.

  Advanced cases of spine disorders can require that surgeons remove all or part
of a damaged disc and/or fuse two or more adjoining vertebrae together.  A
fusion involves the placement of bone graft material between two vertebrae and
may involve the use of spinal implants to immobilize the vertebrae while they
fuse together.  The bone graft is intended to provide a matrix that facilitates
new bone ingrowth.  Complete formation of new bone may take six to eighteen
months.  For many years, surgeons have sought a means to increase the rate of
new bone formation at a surgical site.  However, until recently, no growth
inducing agents were commercially available.

  We estimate that approximately 50% of all spine fusion procedures are
performed in the thoraco-lumbar spine generally using posterior instrumentation
systems (i.e. hooks, rods and screws), approximately 25% are performed in the
cervical spine generally using cervical plates, and approximately 25% are
performed throughout the spine using intervertebral devices, also called spine
cages.  Our current spinal implants address the instrumented procedures in the
thoraco-lumbar spine and plated cervical spine fusions.

Our Spinal Implant Products

  Synergy Spinal System.  Our Synergy Spinal System consists of rods, hooks and
screws that are attached to vertebrae adjacent to an injured or defective area
of the spine.  Our system is a "universal" implant system that allows surgeons
to treat both the thoracic and lumbar portions of the spine.  We believe our
Synergy Spinal System offers a number of benefits, including the following:

  . Ease of Use. Our Synergy Spinal System was engineered to be easy for
    surgeons to use, reducing surgical time and requiring less manipulation. The
    screws and hooks are top tightening, the rods do not require pre-loading of
    additional components, and all implants allow for free rod rotation.

        . Our patented variable locking screw design allows the surgeon to angle
          and tighten screws in many planes, reducing the amount of required rod
          bending and facilitating rod placement.
<PAGE>

    .  The patented design of the external hexagonal head of our double hex set
       screw shears off at a predetermined torque, allowing the surgeon to
       consistently tighten screws to the right tension. However, an internal
       hexagonal cavity remains to allow the surgeon to remove the set screw if
       necessary.

 .  Universal Application. Synergy implants come in various sizes and types to
    meet the surgeon's preferences and the patient's anatomy, providing a secure
    anatomic fit for virtually any pathology. The Synergy Spinal System does not
    require that the surgeon follow a single surgical protocol, but provides
    several options, and can be used in both anterior and posterior
    applications, in both adults and children.

 .  Smaller and Stronger. We offer Synergy implants in either stainless steel or
    titanium. The strength of the Synergy implants provides resistance to
    fatigue and allows the implants to be smaller than many competing products.
    Titanium implants are preferred in many foreign markets and are being used
    increasingly in the United States because titanium allows magnetic resonance
    imaging of the spinal area.

 .  Low Profile. Profile describes the prominence of implants above the normal
    bony surfaces of the spine. The Synergy Spinal System was designed to
    minimize the height and bulk of its implants, reducing the risk of
    irritation, inflammation and infection for the patient. It has been ranked
    as having one of the lowest profiles of commonly available spinal implant
    systems.

  C-Tek Anterior Cervical Plate System.  Our C-Tek is a titanium plate that is
attached using screws to two or more vertebrae in the cervical spine to
facilitate spine fusion.  We received FDA 510(k) clearance of the C-Tek in late
2000, and introduced it to the market in the first quarter of 2001.  We believe
our C-Tek System offers a number of benefits, including the following:

 .  Low Profile and Narrow Width. The C-Tek has one of the lowest profiles among
    the cervical plates available to the market, and its width is narrow. These
    characteristics are particularly important in the cervical spine, where
    anterior implants must be placed close to soft tissues in the throat.

 .  Fixed and Slotted Hole Versions. While most competitors' cervical plate
    systems incorporate either a fixed hole or a slotted hole design, our C-Tek
    is available in either design in order to accommodate the physician's
    surgical philosophy. These features allow the surgeon to create rigid, semi-
    rigid or load-sharing constructs.

 .  One-Step Locking. All cervical plate systems must incorporate some safeguard
    to prevent the backing out of screws, which can be a significant problem
    because the implants are placed very close to soft tissues in the throat.
    While most other cervical plate systems require a locking procedure to be
    applied to each screw, our C-Tek incorporates a proprietary one-step locking
    mechanism that enables all screws to be locked with a single procedural
    step.

  TPS Telescopic Plate Spacer.  Our TPS is an expandable titanium spacer
intended to replace one or two vertebral bodies that must be removed due to
cancer.  This device combines the functions of an anterior plate and a vertebral
column spacer and it incorporates a patented telescoping feature.  We received a
Humanitarian Device Exemption (HDE) from the FDA in early 2000 for the cervical
spine version of the TPS.  We plan to seek FDA clearance of a version for
thoraco-lumbar applications in 2001.

Orthobiologics Market Overview

  Bone is a composite material made up of bone cells and a porous matrix.  The
matrix is composed of collagen and ceramic calcium phosphate crystals.  Bone
continuously remodels itself, thereby repairing the small imperfections formed
due to everyday activity.  Bone will often spontaneously repair minor fractures
without surgical intervention.  However, major skeletal deficiencies from
trauma, spinal instability, degenerative conditions and tumor will frequently
require a surgical procedure involving bone graft.
<PAGE>

  There are three types of orthobiologic bone grafting products:

  . Osteoconductive materials, which act as a scaffold for bone and tissue
    growth while healing occurs;

  . Osteoinductive materials, which promote or stimulate bone or tissue growth;
    and

  . Combination materials with both osteoconductive and osteoinductive
    characteristics.

  Bone Grafts.  It is estimated that bone grafts are used in over 600,000
procedures annually in the United States.  They are used for a wide variety of
indications including spine fusions, total joint surgery, maxillofacial
applications and other surgical procedures.  There are currently three major
categories of bone grafts: autograft, allograft and synthetic bone graft
substitutes.  We estimate that synthetic bone graft substitutes are used in
about 11% of the bone graft procedures performed annually in the United States,
with the remaining procedures divided approximately equally between autografts
and allografts.

  Autograft bone is bone harvested from another part of the patient's skeleton,
typically the iliac crest or hip.  Once harvested, the bone is grafted to the
site of the bone deficit.  Harvesting bone typically requires a second surgical
procedure, increases total operating time and expense, and can lead to
complications such as infection, chronic pain, deformity and excess blood loss.
Autograft bone can have both osteoinductive and osteoconductive properties.

  Allograft bone is bone obtained from a cadaver.  There are numerous bone banks
that obtain cadaver tissue from regional donor centers.  Once obtained, the
tissue is processed and configured into a variety of forms, including chips,
paste, blocks, gels and putties.  Strict donor screening standards and testing
for infectious agents such as hepatitis B and HIV have significantly reduced the
possibility of implant rejection and disease transmission.  Allograft bone can
have osteoconductive and osteoinductive properties, but we believe the growth
factors contained in allograft bone may be compromised in some of the commonly
used sterilization procedures.

  Synthetic bone graft substitutes are artificially produced and can be used in
place of autograft or allograft or mixed with autograft or allograft.  Synthetic
bone graft substitutes are available in a wide range of forms, including
granules, blocks, strips, gels, slurries and injectable bone graft cements.
Synthetic bone graft substitutes generally have osteoconductive properties.

  Growth Factors.  Specific naturally-occurring proteins, called growth factors,
regulate bone generation by stimulating either the formation of new bone cells
or the replication of existing cells.  We believe that the combination of growth
factors with bone grafts will be the next major advancement in bone grafting.
To derive growth factors, a number of methods are under development, including
recombinant DNA technology, gene therapy, extraction from cow bone and advanced
filtration technologies.  With recombinant DNA technology, the desired human
growth protein gene is introduced into a production host, usually an animal,
bacterial or yeast cell, and the host makes the human protein along with its
own.  These proteins are then concentrated and made into a usable form.  Using
filtration methods, the human growth factor proteins are removed from the
patient's own blood.  These proteins can be concentrated and combined with any
of the three major categories of bone graft.
<PAGE>

Our Orthobiologic Products

  Bone Graft Substitutes.  Our Pro Osteon bone graft substitute products are
derived from the exoskeleton of two specific genera of coral and chemically
converted into a material with porosity, architecture and chemical composition
similar to that of human bone, using our proprietary manufacturing process.  Due
to its structure, the graft provides a matrix that facilitates new bone
ingrowth.  Our BonePlast bone void filler is a calcium sulfate (plaster-of-
paris) material that resorbs and is replaced with bone during the healing
process.  Our line of osteoconductive bone graft products includes:

<TABLE>
<CAPTION>
         Product                         Description                       Indication                  U.S. Regulatory Status
-------------------------      ----------------------------      ----------------------------      ----------------------------
<S>                               <C>                               <C>                               <C>
Pro Osteon 500                    Bone graft substitute.            Repair skeletal defects           PMA approved in 1992.
(hydroxyapatite)                  500 micron pore size              in extremities.
                                  blocks and granules.

Pro Osteon 500R                   Patented resorbable bone          Repair all skeletal               510(k) cleared in 1998.
(hydroxyapatite/calcium           graft substitute. 500             defects, including spine.
carbonate composite)              micron pore size blocks
                                  and granules.

Pro Osteon 200/                   Bone graft substitute.            Repair all skeletal               510(k) cleared in 1985.
Interpore 200                     200 micron pore size              defects, inclucing spine.
(hydroxyapatite)                  blocks and granules.

Pro Osteon 200R                   Patented resorbable bone          Repair skeletal defects           510(k) cleared in 2000.
(hydroxyapatite/calcium           graft substitute. 200             in oral/maxillofacial
carbonate composite)              micron pore size blocks           areas.
                                  and granules.

BonePlast (calcium                Fast resorbing, moldable          Fill voids in bone. Used          510(k) cleared in 1999.
sulfate)                          bone void filler.                 in extremities, spine and
                                                                    pelvis.
</TABLE>

  Our Pro Osteon and BonePlast products compare favorably with autograft,
allograft and other synthetic bone grafts used today.  We believe our products:

  .  Eliminate morbidity and cost associated with autograft harvesting;

  .  Eliminate disease transmission and host rejection risk;

  .  Require no special handling or storage conditions;

  .  Can be prepared simultaneously with surgery;

  .  Contain no fillers such as glycerol, which has been shown to have toxic
     effects; and

  .  Are easily shaped by surgeons to fill bone voids or defects.
<PAGE>

  AGF (Autologous Growth Factors).  AGF is a concentrate of growth factors
derived from platelets in a patient's blood which is used to encourage more
complete and rapid bone growth in bone defects.  Our two key products used to
collect AGF are the UltraConcentrator Permeability Hemodialyzer and the
Automated Processor.  Cleared for marketing by the FDA in the fourth quarter of
1998, these products are used to produce a concentrated growth factor "gel" from
platelets in the patient's own blood.  Our AGF related products were
commercially launched in 1999.

  In the AGF collection process, blood from the patient is separated into
different component layers using a device called a cell washer, which is
routinely available in the operating room during spine fusion and revision total
joint replacement procedures.  One of the layers, known as the "buffy coat,"
contains platelet-rich plasma and white blood cells.  The buffy coat is
processed using our proprietary filtering technology which super-concentrates
the platelets and fibrinogen, producing a "cocktail" of growth factors,
including Platelet-Derived Growth Factor and Transforming Growth Factor Beta.
With the addition of thrombin, the fibrinogen contained in AGF is converted into
fibrin, giving AGF a gel-like consistency.  AGF can be combined directly with a
bone graft material, such as our Pro Osteon and BonePlast products, as well as
autograft and allograft, and placed at the bone graft site.  The red cells and
plasma component layers from the cell washer are returned to the patient,
resulting in minimal blood loss.

  We believe that AGF provides the surgeon with the growth factors desired for
faster and more complete bone graft healing and that AGF may be preferred by
surgeons due to factors which include the following:

  . Many surgeons prefer autologous solutions, such as AGF, that are derived
    from the patient's own tissues;

  . AGF's gel-like consistency discourages migration from the bone defect site
    to other areas in the body;

  . AGF is a "cocktail" of many cell-stimulating growth factors;

  . Using the patient's own growth factors eliminates dosage concerns; and

  . The cost of AGF is lower than that anticipated for recombinant products
    under development.

Business Strategy

  Our goal is to establish a leadership position in the development of products
for the surgical treatment of spine disorders.  In order to achieve this goal,
we plan to undertake the following strategies:

  Expand and Enhance our Spinal Implant Product Portfolio.  Until the recent
launch of the C-Tek Anterior Cervical Plate system, our spinal products
primarily targeted the thoracic and lumbar regions of the spine.  With the
release of the C-Tek and the development of additional spinal implants,
including spine cages, we are creating a more complete product portfolio.  This
will allow us to offer physicians a comprehensive surgical solution.  We plan to
invest significant resources in research and development in an effort to
introduce technological advancements in the spinal market.  We will also
consider the acquisition of companies and products to complement our current
product platform.

  Capitalize on "First to Market" with our AGF Technology.  Our AGF related
products received market clearance in December 1998 and were nationally launched
in June 1999.  We were the first company to market FDA-cleared devices that
extract and concentrate autologous growth factors intraoperatively to levels
shown in studies to stimulate bone growth.  Other synthetically derived growth
factors are being developed and are in late stages of clinical trials or the
Premarket Approval process, but we believe none are yet approved for use in the
United States.  We plan to capitalize on our "first to market" position by
developing improvements to the process and completing the numerous ongoing
clinical studies to prove the effectiveness of AGF.  Also, we believe that AGF
holds great promise in areas outside of orthopedics for wound-healing
applications, such as general, cosmetic and maxillofacial surgery as well as
burns.  We are exploring partnering with companies that participate in the large
and diverse wound-healing market in order to expand the use of AGF into these
applications.
<PAGE>

  Continue to Expand and Strengthen our Distribution Network.  In the United
States, we utilize independent agents as the primary channel to distribute our
product portfolio.  Many of the larger companies in our industry are
transitioning from independent agents to a direct sales force.  We have been the
beneficiary of such transitions, as many highly qualified agents prefer to
remain independent and find our product offering attractive.  We intend to
attract and retain independent agents who have many years of experience selling
spinal products and strong relationships with spine surgeons and who can
distribute all of our product lines.  Our product offering presents cross-
selling opportunities for our distribution network.  We provide extensive
technical training programs on new and current products and demonstrate how
these products can be used in combination.  We believe these efforts will enable
us to further penetrate the spine market.

  Expand our Clinical Leadership Base.  We intend to increase market awareness
of our products through a combination of symposia, VIP tours and extensive
training and education programs for leading spine surgeons and key opinion
leaders.  We also intend to enlist these leading physicians in various studies
involving our products.  Upon completion of these studies, we will seek to
publish the results in well-known industry journals.

Research and Development.

  As of March 1, 2001, our research and development department consisted of 24
full-time employees.  We also engage outside consultants and academic research
facilities for assistance with our new product development and will license
technology from third parties under appropriate circumstances.  We plan to
continue to use outside resources for product research.  In 1992, we formed the
Synergy System Advisors, a group of prominent spine surgeons, that assisted in
the development of the Synergy Spinal System.  We have agreements with the
advisors under which we pay royalties ranging from 5% to 7% of net revenues
generated from the sale of certain products within the Synergy Spinal System.
Our expenditures for research and development were $3.7 million in 1998, $4.2
million in 1999 and $5.3 million in 2000.

  Additional spinal implant and orthobiologic products which we currently have
under development include:

  . Geo Structure. This unique titanium spacer has a geometric design which
    provides very high strength with a minimum amount of metal in the implant.
    This design will allow the surgeon to place a larger quantity of graft
    material at the graft site, which increases the probability of a successful
    fusion. It will also allow better radiographic visualization of the graft
    site postoperatively for better assessment of fusion. We submitted a 510(k)
    application for this product in the first quarter of 2001.

 .  Intervertebral Cages. We are currently conducting mechanical testing on
    several alternative designs. Our objective is to develop a cage which would
    be a stand-alone device, expandable to optimize anatomic fit, and
    radiolucent. Intervertebral cages are currently Class III devices requiring
    Premarket approval from the FDA.

 .  Artificial Disc. Our simple patented design, with no moving parts, could
    allow a surgeon to replace a diseased disc while maintaining motion of the
    spine in the affected segment, eliminating the need for fusion. We expect to
    begin animal studies on this device in mid-2001.

 .  Use of BonePlast/Pro Osteon 200R for Vertebroplasty. Vertebroplasty is a
    treatment for compression fractures of the vertebrae, a common occurrence
    among osteoporotic patients. In this procedure, physicians generally insert
    bone cement into the vertebral body to restore the height of the vertebra
    and reduce pain. However, bone cement has certain undesirable
    characteristics and we believe that BonePlast combined with our Pro Osteon
    200R may be uniquely suitable for this procedure. Animal trials are
    scheduled to commence in 2001.
<PAGE>

 .  Polymer-reinforced Pro Osteon Material. We have development efforts underway
    for a polymer-reinforced Pro Osteon material. We believe that increasing the
    strength of our resorbable version of Pro Osteon in various configurations,
    combined with AGF, holds promise for potential use as a natural, resorbable
    alternative to titanium and composite spinal implants currently available in
    the market. Such a product would be several years from the market, if
    developed at all. Animal trials are scheduled to commence in 2001.

  We currently have a number of prospective randomized clinical studies underway
at a variety of institutions to demonstrate the efficacy of our AGF-related
products for multiple indications.

Intellectual Property

  As part of our ongoing research, development and manufacturing activities, we
have a policy of seeking patent protection.  Patents relating to particular
products, uses or procedures, however, do not preclude other manufacturers from
employing alternative processes or from successfully marketing substitute
products.  We believe that although patents often are necessary to protect our
technology and products, the lengthy FDA approval process and certain
manufacturing processes are more significant barriers to entry.  Moreover, much
of the proprietary technology and manufacturing processes developed by us reside
in our key scientific and technical personnel and such technology and processes
are not easily transferable to other scientific and technical personnel.  The
loss of the services of key scientific, technical and manufacturing personnel
could have a material adverse effect on our business and results of operations.

  Spinal Implant Products.  We own eight U.S. patents related to various aspects
of our spinal implant products, including the bone anchor, the rod/anchor
interface, instrumentation and transverse connectors.  We have five U.S. patents
pending concerning enhancements to our Synergy Spinal System and for several new
products.

  Orthobiologic Products.  We own eleven U.S. patents related to our
orthobiologic products.  Of these, two relate to our Pro Osteon 500R resorbable
bone graft substitute, and three are for our AGF related products.  We have four
U.S. patents pending relating to several new products.

  In the fourth quarter of 1999, we purchased all of the intellectual property
of Quantic Biomedical, Inc.  Quantic previously had licensed to us the right to
design, manufacture and market orthopedic products incorporating technology to
produce AGF.  We acquired this technology in order to preserve our access to all
markets for our AGF related products.

  We require our employees, consultants and advisors to execute nondisclosure
agreements in connection with their employment, consulting or advisory
relationships with us.  We also require our employees, consultants and some
advisors to agree to disclose and assign to us all inventions conceived during
the work day, using our property or which relate to our business.  Despite any
measures taken to protect our intellectual property, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary.  Finally, our competitors may independently develop
similar technologies.

  Our trademarks include "Interpore(R)," "Cross Medical(R)," "Cross(R)," "Pro
Osteon/(TM)/," "Pro Osteon 500/(TM)/," "Interpore 200(R)," "AGF/(TM)/,"
"Autologous Growth Factors/(TM)/," "UltraCon(TM)", "Synergy/(TM)/,"
"BonePlast/(TM)/," "TPS/(TM)/," "Geo/(TM)/ Structure," "C-Tek(TM),"
"Integral(TM)" and "VLS(TM)."

Customers, Sales and Marketing

  The decision to use our products is made by the orthopedic surgeon or the
neurosurgeon.  We direct our domestic marketing efforts to the approximately
14,000 practicing orthopedic surgeons in the United States in private practice,
hospitals and orthopedic treatment centers.  Of the approximately 14,000
practicing orthopedic surgeons, we estimate there are over 2,000 fellowship-
trained spine surgeons.  In addition to the orthopedic surgeons, we estimate
that there are over 1,000 neurosurgeons performing spine fusion procedures that
utilize implants.
<PAGE>

  Our domestic sales organization consists of mostly independent agents with a
few direct sales representatives.  As of March 12, 2001, we had contracts with
38 independent agents which employed approximately 149 sales representatives and
we employed two direct sales representatives.  The domestic sales organization
is managed by a Vice President of North American Sales and five division
managers.  We invoice hospitals directly, generally at list prices, and pay
commissions to the agents and direct sales representatives.  We provide
consignment inventories to our independent agents, direct sales representatives
and some hospitals.  We select agent organizations and direct sales
representatives for their expertise in spinal implant, orthopedic or medical
device sales, their reputation within the surgeon community and their sales
coverage within a geographic area.  Each agent organization and direct sales
representative is given an exclusive sales territory for some or all of our
products and is subject to periodic performance reviews.  In addition, each new
independent sales agent and direct sales representative goes through training
programs before initiating sales efforts for our products.  We also require each
independent agent and direct sales representative to attend periodic sales and
product training.

  Outside of the United States, we distribute products only through independent
distributors.  We have a Vice President of International Sales, a Latin America
sales manager and a European business liaison and have established distribution
arrangements with 42 distributors in 38 countries.  Our international sales
represented approximately 23% of sales in 1998, 22% of sales in 1999 and 20% of
sales in 2000.  Sales to our international customers are denominated in U.S.
dollars.

  In the United States, there are no significant customer concentrations, as we
invoice hospitals directly for product used or shipped.  However, in the
international markets, we have a significant distributor in Spain that
accounted for approximately 24% of our 2000 international sales and 5% of our
2000 worldwide sales.

  In order to improve shipping efficiencies and service to our international
customers, in January 1998 we entered into an agreement with a contract
warehouse in the Netherlands to ship bone graft products to customers in certain
countries outside of North America.

  We participate in over two dozen professional meetings including the American
Academy of Orthopaedic Surgeons Meeting, the North American Spine Society
Meeting and the Congress of Neurological Surgeons.  We also participate in
scientific presentations and professional seminars at hospitals and provide
funding for surgeon symposia from time to time.

Third-Party Reimbursement

  We expect that sales volumes and prices of our products will continue to be
dependent in large part on the availability of reimbursement from third-party
payors.  In the United States, our products are purchased by hospitals, who are
reimbursed for the devices provided to their patients by third-party payors,
such as governmental programs (e.g., Medicare and Medicaid), private insurance
plans and managed care programs.  These third-party payors may deny
reimbursement if they determine that a device used in a procedure was not used
in accordance with cost-effective treatment methods, as determined by the third-
party payor, or was used for an unapproved indication.  Also, third-party payors
are increasingly challenging the prices charged for medical products and
services.  In international markets, reimbursement and healthcare payment
systems vary significantly by country and many countries have instituted price
ceilings on specific product lines.  There can be no assurance that our products
will be considered cost-effective by third-party payors, that reimbursement will
be available or, if available, that the third-party payors' reimbursement
policies will not adversely affect our ability to sell our products profitably.

  Particularly in the United States, third-party payors carefully review, and
increasingly challenge, the prices charged for procedures and medical products.
In addition, an increasing percentage of insured individuals are receiving their
medical care through managed care programs, which monitor and often require pre-
approval of the services that a member will receive.  Many managed care programs
are paying their providers on a capitated basis, which puts the providers at
financial risk for the services provided to their patients by paying them a
predetermined payment per member per month.  The percentage of individuals
covered by managed care programs is expected to grow in the United States over
the next decade.
<PAGE>

  We believe that the overall escalating cost of medical products and services
has led to, and will continue to lead to, increased pressures on the healthcare
industry to reduce the costs of products and services.  There can be no
assurance that third-party reimbursement and coverage will be available or
adequate, or that future legislation, regulation, or reimbursement policies of
third-party payors will not adversely affect the demand for our products in
development or our ability to sell these products on a profitable basis.  The
unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on our business, operating results and
financial condition.

Manufacturing

  Spinal Implants.  We contract with outside vendors for the manufacture of our
spinal implant products, which are fabricated from medical grade stainless steel
or titanium according to our specifications.  Following the receipt of products
at our facility, we conduct inspection, packaging and labeling operations.  All
of our current spinal implant products are distributed in a non-sterile
condition, which is the industry standard for implant systems such as our
Synergy and C-Tek.  Certain future spinal implant products, such as the Geo
Structure, may be provided in sterile packaging.

  Orthobiologics.  Coral is the primary raw material used to manufacture our Pro
Osteon products.  The coral used in our products is sourced from two genera
located in a wide variety of geographic locations.  We presently harvest coral
in tropical areas of the Pacific and Indian Oceans.  We believe we have an
adequate supply of coral for the foreseeable future.  Coral is covered under an
international treaty entitled Convention on International Trade of Endangered
Species of Wild Fauna and Flora, which regulates the import/export of raw coral
and products derived therefrom in approximately 140 nations around the world.
To date, the limitations imposed by this treaty have not affected our ability to
source raw coral.  The manufacturing process for our Pro Osteon line of bone
graft substitute products involves coral qualification and cutting, hydrothermal
conversion, testing, packaging and sterilization of the product, all of which,
with the exception of sterilization, are performed at our facilities.

  Some of the products and materials supplied by our vendors are currently sole-
sourced, but we believe that we could locate alternative vendors for supply of
these components.  However, the UltraConcentrator, one of our products used to
collect AGF, is manufactured under an exclusive supply agreement with a vendor
that itself has a sole source of supply of the contained filter material.
Although the filter material is not readily available through alternative
sources, we believe there are suppliers that could supply alternate materials
with equivalent function.  In the event that a re-engineering of the product
were necessary due to an interruption in supply from our current vendor, delays
in product availability could occur and significant costs could be incurred,
either of which could have a material adverse effect on our operations.

Competition

  Spinal Implant Market.  Many companies compete in the spinal implant market
and competition is intense.  We believe that our largest competitors in the
United States offering spinal implants are Medtronic Sofamor Danek USA, DePuy
AcroMed, Inc., a Johnson & Johnson company, and SYNTHES-STRATEC, Inc., each of
which has substantially greater sales and financial resources than we do.
Medtronic Sofamor Danek, in particular, has a broader spinal implant line.
Other companies have developed and are marketing products based on technologies
that are different from ours, including spine fusion cages, spinal implants
designed to be used with minimally invasive or laparoscopic surgery, and
allograft bone dowels.

                                       10
<PAGE>

  Orthopedic Bone Graft Substitute Market.  Our synthetic bone products compete
principally with natural bone obtained from autograft procedures, considered the
physician's "gold standard," with allograft bone obtained from cadavers and with
other synthetic bone products.  Autograft and allograft bone have been used as
graft material for a much longer period than synthetic bone graft materials, and
in order to maintain and increase future sales of our synthetic bone graft
products, we will have to continue to demonstrate to the medical community the
surgical and patient advantages, safety, efficacy, cost effectiveness and
clinical results of our synthetic bone graft products.  Competitive bone
substitute products include: Grafton(R) demineralized bone products from
Osteotech, DynaGraft demineralized bone products from GenSci Regeneration
Technologies, OsteoSet(TM) calcium sulfate from Wright Medical Technology,
Vitoss(TM) from Orthovita, as well as other bone substitute products used in
non-orthopedic applications.  Several other companies are pursuing additional
synthetic bone graft materials for orthopedic applications which could
ultimately compete with our synthetic bone graft products in the United States.

  Growth Factors. There is significant development activity ongoing that, if
successful, would potentially produce products competitive with our AGF
technology. Stryker Corporation has distribution rights to a recombinant human
bone morphogenetic protein called OP-1.  They have completed human clinical
studies, but as of March 15, 2001 had not yet been able to obtain approval of
their Premarket Approval application filed with the FDA. Genetics Institute,
Inc. has a recombinant human bone morphogenetic protein (rhBMP-2) in human
clinical studies, and we believe they plan to file a Premarket Approval
application in 2001. Sulzer Orthopedics Biologics, a subsidiary of SulzerMedica
of Switzerland, has an extract of bovine (cow)-derived bone growth protein that
is in preclinical animal studies and may be in clinical evaluation.

  We compete in all of our markets primarily on the basis of product performance
and price, as well as customer loyalty and service.

Government Regulation

  Our products are regulated by the FDA under the federal Food, Drug and
Cosmetic Act, as well as other federal, state and local governmental authorities
and similar regulatory agencies in other countries.  The FDA permits commercial
distribution of a new medical device only after the FDA has cleared a 510(k)
premarket notification or has approved a Premarket Approval application for such
medical device.  In general, the FDA will clear marketing of a medical device
through the 510(k) premarket notification process if it is demonstrated that the
new product is substantially equivalent, in terms of safety and intended use to
certain 510(k) cleared products which are already commercially available and
legally sold on the market.

  The Premarket Approval process is lengthier and more burdensome than the
510(k) premarket notification process.  The Premarket Approval process generally
requires detailed animal and clinical studies, as well as manufacturing data and
other information.  If clinical studies are required by the FDA, an
Investigational Device Exemption is also required.  An Investigational Device
Exemption restricts the investigational use of the device to a limited number of
investigational sites, investigators and patients.  Its purpose is to prove
safety and efficacy of the device.  FDA approval of a Premarket Approval
application indicates that the FDA concurs that a device has been scientifically
proven, through the completion and submission of animal data, a completed
Investigational Device Exemption and other pertinent information, to be safe and
effective for its intended use.

  Our Synergy Spinal System received 510(k) marketing clearance from the FDA.
We received 510(k) clearance from the FDA to market the anterior portion of the
Synergy Spinal System in October 1994 and for the posterior portion of the
system in July 1995.  In September 1996, we developed a titanium version of the
Synergy Spinal System for international distribution.  We received FDA marketing
clearance for the anterior portion of the titanium version in October 1995 and
the posterior portion in January 1997.

                                       11
<PAGE>

  In March 2000, the Food and Drug Administration approved a Humanitarian Device
Exemption (HDE) for the cervical version of our corpectomy cage, the TPS
Telescopic Plate Spacer.  An HDE is designed to encourage the discovery and use
of devices intended to benefit patients in the treatment or diagnosis of
diseases or conditions that affect or are manifested in fewer than 4,000
individuals in the United States per year.  In the case of the TPS, the approved
indication is for the replacement of normal body structures following a
vertebrectomy or corpectomy of the spine for metastatic disease in the cervical
or cervical-thoracic spine.

  In October 2000, we received FDA 510(k) clearance to market our C-Tek Anterior
Cervical Plate System.

  In October 1992, we received FDA approval to market Pro Osteon 500 for certain
defects in the wide part of long bones.  We subsequently received FDA approval
to market it in granular forms and a wide variety of block configurations up to
30 cc's in total volume, and for additional indications including the treatment
of cysts and tumors in long bones.  Our Pro Osteon 200 and Interpore 200 were
cleared for marketing for certain oral surgery, periodontal defects,
craniofacial and orthognathic indications through 510(k) premarket
notifications.

  In July 1997, the FDA cleared the use of a competitive synthetic bone graft
substitute product with a 510(k).  Prior to clearance of this device, companies
were required to obtain marketing approval from the FDA for bone graft
substitutes via the Premarket Approval process.  It is possible that some
clearances of other bone graft substitute products may now be obtained through
the less burdensome 510(k) premarket notification process.  This may increase
competition.  In September 1998, we received 510(k) clearance from the FDA for
our Pro Osteon 500R resorbable bone graft substitute product.  The approved
indications include use in bony voids or gaps of the skeletal system, such as
the extremities, spine and pelvis.  In December 2000, we received 510(k)
clearance from the FDA for our Pro Osteon 200R resorbable bone graft substitute
product.

  In September, 1999, we received FDA 510(k) clearance for our BonePlast bone
void filler for use in the extremities, spine and pelvis.

  In December 1998, we received FDA 510(k) clearances for the two key products
in the AGF system, the UltraConcentrator Permeability Hemodialyzer and the
Automated Processor.

  Other FDA requirements govern product labeling and prohibit a manufacturer
from marketing an approved device for unapproved applications.  If the FDA
believes that a manufacturer is not in compliance with the law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the manufacturer, its
officers and employees.

  We are registered as a medical device manufacturer with the FDA, with state
agencies such as the Food and Drug Branch of the California Department of Health
Services and with the European Community.  These agencies inspect our facilities
from time to time to determine whether we are in compliance with various
regulations relating to medical device manufacturing, including the FDA's
Quality System Regulations and ISO 9001/EN46001, which govern design,
manufacturing, testing, quality control, sterilization and labeling of medical
devices.  We believe we are in compliance with the regulations established by
these agencies applicable to our business.  The European Community Notified
Body, the FDA and the California Department of Health Services have inspected
our manufacturing facilities and quality assurance procedures in the past and we
expect them to continue to do so in the future.

                                       12
<PAGE>

  With respect to our bone graft substitute products, we must also comply with
the requirements of the Convention on International Trade of Endangered Species
of Wild Fauna and Flora, or CITES.  This is an international agreement signed by
approximately 140 nations which regulates the import and export of products
which are derived from endangered wildlife.  Although the coral we use is not an
endangered species, all harvested coral is subject to regulation under CITES.
As a result, we must register and obtain licensure from the U.S. Department of
Fish and Wildlife for both the import of raw coral and the export of finished
product.  We maintain several years' supply of coral to minimize the risk of
supply interruptions.  Because each shipment of product exported outside of the
United States or its possessions requires individual permitting, and also to
improve shipping efficiencies and service to our international customers, we
entered into an agreement with a contract warehouse in the Netherlands for the
purpose of international distribution of our products.

  We must also comply with registration requirements of foreign governments and
with import and export regulations when distributing our products to foreign
nations.  Each foreign country's regulatory requirements for product approval
and distribution are unique and may require the expenditure of substantial time,
resources and effort to obtain and maintain approvals for marketing.  In
September 1995, we received approval to use the "CE" mark for our entire line of
orthopedic and oral/maxillofacial synthetic bone graft materials.  We received
approval to use the "CE" mark for our spinal implant systems in 1998.  The CE
mark indicates that the products are approved for sale within 18 countries in
the European Community and European Free Trade Association and that we are in
compliance with the ISO 9001 and EN 46001 standards which govern medical device
manufacturers that are marketing products in Europe.  The CE mark is now also
accepted by several countries outside of the European Community.

Employees

  As of March 1, 2001, we had 117 full-time employees, of whom 35 were engaged
in marketing and sales, 31 in manufacturing, 15 in regulatory affairs and
quality assurance, 12 in general administration and finance and 24 in research
and development.  None of these employees is represented by a union, and we have
never experienced a work stoppage.  We consider our relations with our employees
to be good.

Certain Business Considerations

  Investors are cautioned that certain statements contained in or incorporated
by reference into this Annual Report on Form 10-K, or which are otherwise made
by us or on our behalf are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.  Forward-looking statements
include statements that are predictive in nature, which depend upon or refer to
future events or conditions, which include words such as "believes," "plans,"
"anticipates," "estimates," "expects" or similar expressions.  In addition, any
statements concerning future financial performance, ongoing business strategies
or prospects, and possible future actions, which may be provided by our
management, are also forward-looking statements.  Forward-looking statements are
based on current expectations and projections about future events and are
subject to risks, uncertainties, and assumptions about our company, economic and
market factors and the industry in which we do business, among other things.
These statements are not guaranties of future performance and we undertake no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.

  Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors.  Factors
that could cause our actual performance and future events and actions to differ
materially from such forward-looking statements, include, but are not limited to
those discussed below and elsewhere in this Annual Report on Form 10-K.

                                       13
<PAGE>

We are dependent on a few products which may be rendered obsolete.

  We anticipate that most of our revenue growth in the future, if any, will come
from our spinal implant products and from our orthobiologic products.  There can
be no assurance that we will be successful in increasing sales of our current
product offering.  Additionally, there can be no assurance that our efforts to
develop new products will be successful.  If our development efforts are
successful, there can be no assurance that we will be successful in marketing
and selling our new products.  Moreover, our competitors may develop and
successfully commercialize medical devices that directly or indirectly
accomplish what our products are designed to accomplish in a superior and less
expensive manner.  If our competitors' products prove to be more successful than
ours, our products could be rendered obsolete.  As a result, we may not be able
to produce sufficient sales to maintain profitability.

If we fail to compete successfully against existing or potential competitors,
our operating results may be adversely affected.

  Our principal global competitors with respect to our spinal implant product
line are Medtronic Sofamor Danek USA, DePuy AcroMed, Inc., a Johnson & Johnson
company, and SYNTHES-STRATEC, Inc. Our principal global competitors with respect
to our orthobiologic products include Osteotech, Inc., GenSci Regeneration
Technologies and Wright Medical Technology.  Many of these companies have
broader product lines than we do.  Many potential customers have relationships
with our competitors that could make it difficult for us to continue to
penetrate the markets for our products.  In addition, many of our competitors
have significantly greater resources than we do.  Accordingly, they could
substantially increase the resources they devote to the development and
marketing of products that are competitive with ours.

We may not be able to develop new products that will be accepted by the market.

  Our future growth will be dependent on our ability to develop and introduce
new products, including enhancements to our existing products.  We cannot assure
you that we will be able to successfully develop or market new products or that
any of our future products will be accepted by our customers.  If we do not
develop new products in time to meet market demand or if there is insufficient
demand for these products, our revenues and profitability may be adversely
affected.

The long-term efficacy and market acceptance of AGF is uncertain.

  Because our AGF related products were introduced only recently under a 510(k)
clearance, we lack long-term clinical data regarding the efficacy and long-term
results of AGF.  To date, we have completed no long-term clinical studies of
AGF.  If long-term studies or clinical experience indicate that procedures
involving AGF do not provide patients with improved clinical outcomes,
anticipated sales of our AGF related products may never materialize.  Our
success in selling our AGF related products will depend, in large part, on the
medical community's acceptance of AGF.  The medical community's acceptance of
AGF will depend upon our ability to demonstrate the efficacy of AGF and its
advantages, favorable clinical performance and cost-effectiveness.  We cannot
predict whether the medical community will accept AGF or, if accepted, the
extent of its use.  If long-term studies or clinical experience indicate that
AGF causes negative effects, we could be subject to significant liability.  Our
strategy to increase sales of AGF is to market these products primarily to our
spinal implant customers.  There is no assurance that the strategy will work,
however, and no assurance that sales of our AGF related products will increase.

                                       14
<PAGE>

We face risks related to the upgrading and expansion of our distribution
network.

  We expect to continue to rely on independent agents for the domestic
distribution of both orthobiologic and spinal implant products.  Independent
commissioned sales agents may represent other medical devices for a variety of
manufacturers and may not dedicate enough time or attention to selling our
products.  Furthermore, we expend significant resources to train and educate new
independent agents about our products and our marketing programs.  Our ability
to recruit independent sales agents has been aided by some of our competitors'
replacement of independent agents with direct sales representatives.  However,
our competitors may not continue to utilize direct sales representatives and we
can therefore give no assurance that we will continue to be able to attract new
or retain our current independent sales agents.  There can be no assurance that
we will be able to develop an effective distribution network or that our sales
force will be able to continue to increase sales or maintain current sales
levels of our products.

Product introductions or modifications may be delayed or canceled as a result of
the FDA regulatory process, which could cause our sales to decline.

  The medical devices we manufacture and market are subject to rigorous
regulation by the FDA and numerous other federal, state and foreign governmental
authorities.  Our failure to comply with such regulations could lead to the
imposition of injunctions, suspensions or loss of regulatory approvals, product
recalls, termination of distribution, or product seizures.  In the most
egregious cases, criminal sanctions or closure of our manufacturing facility are
possible.  The process of obtaining regulatory approvals to market a medical
device, particularly from the FDA, can be costly and time-consuming, and there
can be no assurance that such approvals will be granted on a timely basis, if at
all.  The regulatory process may delay the marketing of new products for lengthy
periods and impose substantial additional costs or it may prevent the
introduction of new products altogether.  In particular, the FDA permits
commercial distribution of a new medical device only after the FDA has cleared a
510(k) premarket notification or has approved a Premarket Approval application,
or PMA, for such device.  The FDA will clear marketing of a medical device
through the 510(k) process if it is demonstrated that the new product is
substantially equivalent to other 510(k)-cleared products.  The PMA approval
process is more costly, lengthy and uncertain than the 510(k) premarket
notification process.  There can be no assurance that any new products we
develop will be subject to the shorter 510(k) clearance process and therefore
significant delays in the introduction of any new products that we develop may
occur.  We anticipate that our products that are in final development will be
eligible for the 510(k) premarket notification process.  If the FDA does not
clear marketing of our products in final development through the 510(k)
clearance process, we will be forced to comply with the PMA approval process in
order to obtain FDA approval for these products.  If we choose to go through the
PMA approval process, there will be significant costs and delays in the
introduction of our new products, if they are approved at all.  Moreover,
foreign governmental authorities have become increasingly stringent and we may
be subject to more rigorous regulation by foreign governmental authorities in
the future.  Any inability or failure of our foreign independent distributors to
comply with the varying regulations or the imposition of new regulations could
restrict such distributors' ability to sell our products internationally and
thereby adversely affect our business.  All products and manufacturing
facilities are subject to continual review and periodic inspection by the FDA.
The discovery of previously unknown problems with our company or our products or
facilities may result in product labeling restrictions, recall, or withdrawal of
the products from the market.  In addition, the FDA actively enforces
regulations prohibiting the promotion of medical devices for unapproved
indications.  If the FDA determines that we have marketed our products for off-
label use, we could be subject to fines, injunctions or other penalties.

                                       15
<PAGE>

We may be subject to product liability claims and our limited product liability
insurance may not be sufficient to cover the claims, or we may be required to
recall our products.

  We manufacture medical devices that are used on patients in surgical
procedures, and we may be subject to product liability claims and product
recalls.  The spinal implant industry has been historically litigious and we
face an inherent business risk of financial exposure to product liability
claims.  Since our spinal products are often implanted in the human body,
manufacturing errors or design defects could result in injury or death to the
patient, and could result in a recall of our products and substantial monetary
damages.  Any product liability claim brought against us, with or without merit,
could result in an increase to our product liability insurance premiums or our
inability to secure coverage in the future.  We would also have to pay any
amount awarded by a court in excess of our policy limits.  In addition, any
recall of our products, whether initiated by us or by a regulatory agency, may
result in adverse publicity for us that could have a material adverse effect on
our business, financial condition and results of operations.  Our product
liability insurance policies have various exclusions, and we may be subject to a
product liability claim or recall for which we have no insurance coverage, in
which case we may have to pay the entire amount of the award or costs of the
recall.  Finally, product liability insurance is expensive and may not be
available in the future on acceptable terms, or at all.

We may face challenges to our patents and proprietary rights.

  We rely on a combination of patents, trade secrets and nondisclosure
agreements to protect our proprietary intellectual property.  Our patent
positions and those of other medical device companies are uncertain and involve
complex and evolving legal and factual questions.  There can be no assurance
that pending patent applications will result in issued patents, that patents
issued to or licensed by us will not be challenged or circumvented by
competitors or that such patents will be found to be valid or sufficiently broad
to protect our technology or to provide us with any competitive advantage.
Third parties could also obtain patents that may require licensing for the
conduct of our business, and there can be no assurance that the required
licenses would be available.  We also rely on nondisclosure agreements with
certain employees, consultants and other parties to protect, in part, trade
secrets and other proprietary technology.  There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any
breach, that others will not independently develop substantially equivalent
proprietary information or that third parties will not otherwise gain access to
our trade secrets and proprietary knowledge.  If our intellectual property is
not adequately protected, our competitors could use the intellectual property
that we have developed to enhance their products and compete more directly with
us, which could result in a decrease in our market share and profits.

  The medical product industry is characterized by frequent and substantial
intellectual property litigation and competitors may resort to intellectual
property litigation as a means of competition.  Intellectual property litigation
is complex and expensive, and the outcome of such litigation is difficult to
predict.  Any future litigation, regardless of the outcome, could result in
substantial expense and significant diversion of the efforts of our technical
and management personnel.  Litigation may also be necessary to enforce our
patents and license agreements, to protect our trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.  An adverse determination in any such proceeding could subject us to
significant liabilities to third parties, or require us to seek licenses from
third parties or pay royalties that may be substantial.  Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing or selling certain of our
products which in turn would have a material adverse effect on our business,
financial condition and results of operations.

                                       16
<PAGE>

Possible denial of third-party reimbursement could materially adversely affect
our future business, results of operations and financial condition.

  In the United States, our products are purchased by hospitals, who are
reimbursed for the devices provided to their patients by third-party payors,
such as governmental programs (e.g., Medicare and Medicaid), private insurance
plans and managed care programs.  These third-party payors may deny
reimbursement if they determine that a device used in a procedure was not used
in accordance with cost-effective treatment methods, as determined by the third-
party payor, or was used for an unapproved indication.  Also, third-party payors
are increasingly challenging the prices charged for medical products and
services.  In international markets, reimbursement and healthcare payment
systems vary significantly by country and many countries have instituted price
ceilings on specific product lines.  There can be no assurance that our products
will be considered cost-effective by third-party payors, that reimbursement will
be available or, if available, that the third-party payors' reimbursement
policies will not adversely affect our ability to sell our products profitably.

We are dependent on our suppliers and the loss of any of these suppliers could
adversely affect our business.

  We do not machine the components for our spinal implants or instruments;
rather, we are dependent upon several suppliers for the machining of such
components.  Also, the UltraConcentrator, one of our products used to collect
AGF, is manufactured under an exclusive supply agreement with a vendor that
itself has a sole source of supply for filter material, a key component of the
UltraConcentrator.  In the event that we are unable to obtain components for any
of our products, or obtain such components on commercially reasonable terms, we
may not be able to manufacture or distribute our products on a timely and
competitive basis, or at all.  Any delays in product availability or costs
incurred in locating alternative suppliers could have a material adverse effect
on our operations.

The harvesting of coral is subject to regulation which could affect our ability
to obtain sufficient quantities of coral in the future.

  The harvesting and import of the coral used for our coral-based orthobiologic
products must comply with the requirements of the Convention on International
Trade of Endangered Species of Wild Fauna and Flora.  As a result, we must
register and obtain licensure from the U.S. Department of Fish and Wildlife for
both the import of raw coral and the export of finished product.  In the future,
regulations could make the import or export of coral or coral-derived products
prohibitive and could interrupt our ability to supply product.  We cannot assure
you that our supply of raw coral is sufficient, that we will be able to obtain
sufficient quantities of coral in the future or that future regulations will not
prohibit its use altogether.

                                       17
<PAGE>

Our business could be materially adversely impacted by risks inherent in
international markets.

  In 2000, approximately 20% of our sales were generated outside the United
States.  We expect that such sales will continue to account for a significant
portion of our revenue in the future.  Our international sales subject us to
other inherent risks, including the following:

  .  fluctuations in currency exchange rates;

  .  regulatory, product approval and reimbursement requirements;

  .  tariffs and other trade barriers;

  .  greater difficulty in accounts receivable collection and longer collection
     periods;

  .  difficulties and costs of managing foreign distributors;

  .  reduced protection for intellectual property rights in some countries;

  .  burdens of complying with a wide variety of foreign laws;

  .  the impact of recessions in economies outside the United States;

  .  political and economic instability; and

  .  seasonal reductions in business activity during the summer months in Europe
     and other parts of the world.

  If we fail to successfully market and sell our products in international
markets, our business, financial condition, results of operations, and cash
flows could be materially and adversely affected.

Future acquisitions could adversely affect our operations or financial results.

  From time to time, we consider acquisition of technology product lines or
businesses to supplement our current product offering.  Any such future
acquisitions involve risks such as the following:

  .  we may be exposed to unknown liabilities of acquired companies;

  .  our acquisition and integration costs may be higher than we anticipated and
     may cause our quarterly and annual operating results to fluctuate;

  .  we may experience difficulty and expense in assimilating the operations and
     personnel of the acquired businesses, disrupting our business and diverting
     management's time and attention; and

  .  our relationships with key customers of acquired businesses may be
     impaired, due to changes in management and ownership of the acquired
     businesses.

                                       18
<PAGE>

Item 2.  Properties

  We are headquartered in Irvine, California where we lease a 35,528 square foot
facility.  The annual average lease expense over the ten year term of the lease,
which expires January 31, 2003, is $387,000.  The lease provides a right to
extend the term for an additional five years at the fair market lease rate of
the facility on the extension date, but not less than the rate we paid during
the month immediately preceding the commencement of the extension period.  We
also lease a 2,700 square foot warehouse facility in Santa Ana, California, a
4,274 square foot facility in Irvine, California to provide additional
warehousing, laboratory and office space, an 1,800 square foot prototype machine
shop in Irvine, California and a sales office with approximately 200 square feet
in Miami, Florida.  We believe our current facilities will be adequate to serve
our operational needs through 2001.

  We also lease a 27,680 square foot facility in Dublin, Ohio that is vacant.
The facility formerly contained the Cross Medical Products offices and operation
until Cross' merger with us and consolidation of their operations into our
headuarters facility.  The lease term began on April 1, 1996 and terminates on
June 1, 2001.


Item 3.  Legal Proceedings

  On September 5, 2000, our wholly-owned subsidiary, Cross, filed suit in the
U.S. District Court, Central District of California, against Depuy AcroMed,
Inc., a Johnson & Johnson company and Biedermann Motech GmbH, which alleges that
Depuy Acromed has infringed and continues to infringe Cross' U.S. Patent Nos.
5,466,237 and 5,474,555.  These patents relate to the VLS or Variable Locking
Screw technology embodied in certain components of our Synergy Spinal System.
The Complaint seeks damages for willful past and continuing infringement of the
patents.  The Complaint also seeks a declaratory judgment against Depuy Acromed
and Biedermann Motech that Cross is not infringing Biedermann Motech's patent
no. 5,207,678.  Depuy AcroMed has responded to the Complaint denying all claims,
alleging that Cross' patents are invalid and unenforceable, and alleging that it
does not infringe.

  Aside from the patent litigation, the nature of our business subjects us to
products liability and various other legal proceedings from time to time.  We
are currently involved in legal proceedings incidental to the normal conduct of
our business.  We do not believe that any liabilities relating to the legal
proceedings to which we are a party are likely to be, individually or in the
aggregate, material to our consolidated financial condition or results of
operations.


Item 4.  Submission of Matters to a Vote of Security Holders

  None.

                                       19
<PAGE>

                                    PART II


Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters

  Our common stock commenced trading on the Nasdaq National Market under the
symbol "BONZ" on December 20, 1993.  The following table sets forth, for the
periods indicated, the intra-day high and low sales prices per share of common
stock on The Nasdaq Stock Market:

<TABLE>
<CAPTION>
                                                                                           High                   Low
                                                                                    ----------------      ----------------
Year Ended December 31, 1999
<S>                                                                                       <C>                   <C>
First Quarter....................................................................          $ 5.97                 $4.06
Second Quarter...................................................................          $ 5.38                 $3.88
Third Quarter....................................................................          $ 8.25                 $4.13
Fourth Quarter...................................................................          $ 8.00                 $4.94

Year Ended December 31, 2000
First Quarter....................................................................          $14.25                 $7.63
Second Quarter...................................................................          $10.50                 $7.50
Third Quarter....................................................................          $12.38                 $6.88
Fourth Quarter...................................................................          $ 8.25                 $3.09
</TABLE>

  On March 15, 2001, the closing sale price for our common stock as reported on
The Nasdaq Stock Market was $3.75.  The number of record holders of our common
stock as of March 15, 2001 was 557.

  We currently do not pay any dividends on our common stock and our Board of
Directors has no present intention to pay cash dividends.  The Board of
Directors intends to use any earnings for the development and expansion of the
business.

                                       20
<PAGE>

Item 6.  Selected Financial Data

  The table below, presents the selected consolidated financial data of
Interpore International, Inc.  This information has been prepared using the
consolidated financial statements of Interpore International, Inc. as of and for
the years ended December 31, 1996, 1997, 1998, 1999 and 2000.  Interpore
International, Inc. and Cross Medical Products, Inc. merged in May 1998.  The
merger was accounted for as a pooling-of-interests.  Accordingly, data as of and
for the years ended December 31, 1996 and 1997 have been restated to include the
financial information of both companies.

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                             -------------------------------------------------------------------------------
                                                 1996              1997                1998              1999        2000
                                             -----------       -----------         -----------        ----------  ---------
                                                                    (in thousands, except per share data)
<S>                                             <C>           <C>                 <C>                  <C>         <C>
Statement of Operations Data:
Net sales  ..................................    $28,489 /(1)/     $28,429 /(1)/     $30,209           $38,856     $44,319
Cost of goods sold  .........................      9,497             9,110             8,552            11,645      13,460
                                             -----------       -----------       -----------         ----------   --------
  Gross profit  .............................     18,992            19,319            21,657            27,211      30,859
Total operating expenses  ...................     19,396            20,095 /(1)/      24,528 /(2)/      22,521      25,256
                                             -----------       -----------       -----------         ----------   --------
  Income (loss) from operations  ............       (404)             (776)           (2,871)            4,690       5,603
Total interest and other income, net  .......        324               566               506               515         991
                                             -----------       -----------       -----------         ----------   --------
Income (loss) before taxes  .................        (80)             (210)           (2,365)            5,205       6,594
Income tax provision (benefit)/(3)/  ........       (788)           (2,119)               59               407       2,461
                                             -----------       -----------       -----------         ----------   --------
  Income (loss) from continuing operations  .    $   708           $ 1,909           $(2,424)          $ 4,798     $ 4,133
                                             ===========       ===========       ===========         ==========   ========
Income (loss) from continuing operations
 per share:
  Basic  ....................................    $   .05           $   .14           $  (.17)          $   .36     $   .29
  Diluted  ..................................    $   .05           $   .14           $  (.17)          $   .35     $   .27
Shares used in computing income (loss) from
 continuing operations per share:
  Basic  ....................................     13,080            13,460            13,904            13,506      14,043
  Diluted  ..................................     14,530            14,111            13,904            13,876      15,140
 <CAPTION>
                                                                            As of December 31,
                                             -------------------------------------------------------------------------------
                                                 1996              1997                1998              1999        2000
                                             -----------       -----------         -----------        ----------  ---------
<S>                                             <C>             <C>                  <C>               <C>         <C>
Balance Sheet Data:
Total cash, cash equivalents and short-term
 investments  ................................   $10,480           $16,590            $ 7,908           $ 9,774      $14,610
Total assets  ................................    39,869            41,483             34,147            40,793       45,233
Short-term obligations  ......................     1,664                95                 15                15           10
Long-term obligations  .......................     5,482             5,124              3,181             3,165            -
Total stockholders' equity  ..................    24,179            31,634             26,951            33,237       41,858
</TABLE>

/(1)/ Our dental implant business was sold in May 1997. The transaction,
      including associated costs, resulted in a net charge to operating expenses
      of $617,000 in 1997. Net sales from the dental business were approximately
      $7.1 million and $1.7 million in 1996 and 1997, respectively.

/(2)/ Amount includes $5.0 million of non-recurring charges related to the May
      1998 merger with Cross, the subsequent restructuring associated with the
      closing of the Dublin, Ohio facility and the relocation of employees and
      assets from Dublin to Irvine, California.

/(3)/ In 1996, 1997, 1998 and 1999, we recognized deferred tax assets of
      $683,000, $2.0 million, $211,000 and $1.6 million, respectively, which had
      previously been fully reserved in accordance with Statement of Financial
      Accounting Standards No. 109.

                                       21
<PAGE>

Item 7.  Management's Discussion and Analysis of Results of Operations and
         Financial Condition

Financial Overview

  Our revenues are generated from the sale of products in two principal product
categories--spinal implant products and orthobiologic products.  Our spinal
implant products consist of titanium or stainless steel hooks, rods, plates,
spacers and screws and related instruments required for the surgeon to assemble
a construct which restores the natural anatomy of the spine, keeping it
immobilized while a bone graft eventually fuses the vertebrae.  Our
orthobiologic products consist of synthetic bone graft substitute materials and
products used to derive AGF.  AGF is used to provide faster, more complete bone
growth and enhance the performance of our bone graft products.

  In May 1998, we merged with Cross Medical Products, Inc., combining our
orthobiologics expertise and product offering with Cross' spinal implant
expertise and products.  The merger was accounted for as a pooling-of-interests,
and all financial information related to periods prior to the merger was
restated to reflect the financial information of both companies as if we had
always been a combined entity.

  All of our operations are located in the United States, however, we sell our
products to customers both within and outside the United States.  In 2000, our
domestic sales were 80% of total sales and our international sales were 20% of
total sales.  Within the United States, we distribute our products primarily
through independent agents.  These independent agents provide a delivery and
consultative service to our surgeon and hospital customers and receive
commissions based on sales in their territories.  The commissions are reflected
in our income statement within selling and marketing expense.

  For our spinal implant products, we invoice hospitals directly following a
surgical procedure in which our products are used.  Our spinal implant products
are made available to hospitals from consignment inventories maintained by our
larger independent agents, or from loaner implant sets that we ship from our
facility.  For our orthobiologic products, we generally ship directly to
hospitals from our facility, and we invoice hospitals upon shipment.

  Outside the United States, we sell our products directly to distributors who
maintain an inventory of our products.  We record revenue at the time of
shipment to the distributor at prices generally ranging from 40% to 70% of our
U.S. list prices.  The distributors service the surgeons and hospitals, deliver
products and invoice hospitals directly at prices determined by the
distributors.

  Because our revenues from U.S. hospitals are primarily at list price, and our
revenues from international distributors are at a discount to U.S. list prices,
our overall gross margin is subject to fluctuation based on our domestic versus
international sales mix, with domestic gross margins being somewhat higher than
international gross margins.  Additionally, the mix between spinal implant sales
and orthobiologic sales also affects our gross margins, with higher margins in
orthobiologics.

                                       22
<PAGE>

Results of Operations

  The following table presents our results of operations as percentages:

<TABLE>
<CAPTION>

                                                                 Percentage of Net Sales                Percentage Change
                                                                 Year ended December 31,             ------------------------
                                                      ------------------------------------------       1999 vs.      2000 vs.
                                                         1998           1999            2000            1998           1999
                                                      ----------       --------       ---------       ---------      ---------
<S>                                                   <C>               <C>              <C>              <C>           <C>
Net sales  ........................................        100.0%         100.0%          100.0%           28.6%          14.1%
Cost of goods sold  ...............................         28.3           30.0            30.4            36.2           15.6
                                                      ----------       --------       ---------       ---------      ---------
  Gross profit  ...................................         71.7           70.0            69.6            25.7           13.4
                                                      ----------       --------       ---------       ---------      ---------
Operating expenses:
  Research and development  .......................         12.1           10.7            12.0            14.9           26.5
  Selling and marketing  ..........................         39.1           36.0            35.7            18.2           13.3
  General and administrative  .....................         13.4           11.2             8.7             7.8          (11.5)
  Merger-related expenses  ........................         10.0              -               -               -              -
  Restructuring charges  ..........................          5.0              -               -               -              -
  Non-recurring charges  ..........................          1.6              -              .6               -              -
                                                      ----------       --------       ---------       ---------      ---------
     Total operating expenses  ....................         81.2           57.9            57.0            (8.2%)         12.1
                                                      ----------       --------       ---------       ---------      ---------
       Income (loss) from operations...............         (9.5%)         12.1%           12.6%              -           19.5%
                                                      ==========       ========       =========       =========      =========
</TABLE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999


  For the year ended December 31, 2000, sales of $44.3 million were $5.5 million
or 14.1% higher than sales of $38.9 million for the previous year.  The
following table presents sales by category (in thousands):

<TABLE>
<CAPTION>
                                                               Year ended December 31,                      Change
                                                         --------------------------------       --------------------------------
                                                           1999                   2000             Amount              Percent
                                                        ----------            -----------        ------------      -------------
<S>                                                        <C>                  <C>                <C>                  <C>
Spinal implant product sales  .........................      $20,807              $23,702           $2,895                 13.9%
Orthobiologic product sales  ..........................       18,049               20,617            2,568                 14.2
                                                             -------              -------           ------              -------
  Total sales  ........................................      $38,856              $44,319           $5,463                 14.1%
                                                             =======              =======           ======              =======
</TABLE>

  Sales of spinal implant products increased in the year ended December 31, 2000
by $2.9 million, or 13.9%, to $23.7 million, compared to $20.8 million for the
year ended December 31, 1999.  We estimate that the growth rate closely matched
the overall growth rate of the market for spinal implants.

  Sales of orthobiologic products increased by $2.5 million, or 14.2%, to $20.6
million for the year ended December 31, 2000, compared to $18.1 million for the
year ended December 31, 1999.  AGF related products, which were launched on a
nationwide basis during the second quarter of 1999, increased by $3.5 million or
128% to $6.3 million for the year ended December 31, 2000 compared to $2.8
million in 1999.  Sales of synthetic bone products decreased $1.0 million or
6.6% to $14.2 million versus $15.2 million in 2000.  We believe the decline in
sales of synthetic bone products has resulted from our deliberate transition of
sales and distribution focus to spinal procedures since our merger with Cross in
1998.  While this shift has benefited our spinal implant product sales, we
believe it has also resulted in a reduction in sales of synthetic bone products
for non-spine procedures such as trauma and revision total joints.  We intend to
explore supplemental distribution alternatives in 2001 with the goal of
recapturing lost sales in non-spine procedures, but there can be no assurance
that our efforts will be successful.

  Total domestic sales of spinal products and orthobiologic products increased
17.9%, or $5.4 million, to $35.5 million for the year ended December 31, 2000,
compared to $30.1 million for the same period of 1999.  International sales were
essentially unchanged at $8.8 million for the years ended December 31, 1999 and
2000.

  For the year ended December 31, 2000, gross margin as a percentage of sales
was 69.6%, compared to 70.0% for the year ended December 31, 1999.

                                       23
<PAGE>

  Total operating expenses for the year ended December 31, 2000 increased by
$2.7 million, or 12.1%, to $25.3 million, compared to $22.5 million during the
same period of 1999.  Research and development expenses in 2000 increased by
26.5%, or $1.1 million, due primarily to salaries for additional engineers hired
for development projects along with associated supply expenses and consulting
fees.  Selling and marketing expenses in 2000 increased $1.9 million, or 13.3%,
compared to 1999, primarily due to increased commissions on higher domestic
sales in 2000.  General and administrative expenses decreased by $499,000, or
11.5%, in 2000, primarily as the result of decreased corporate bonus expense and
lower product liability insurance premiums as a result of more favorable rates.
During the second quarter of 2000, a non-recurring charge of $268,000 was
recorded in connection with the withdrawal of a proposed secondary public stock
offering.

  Total interest and other income increased $476,000, or 92.4%, to $991,000 for
the year ended December 31, 2000, compared to $515,000 during the same period of
1999, as higher average cash, cash equivalents and short-term investment
balances in 2000 increased interest income and the elimination of long-term
debt in 2000 reduced interest expense.

  The effective tax rates for 1999 and 2000 were 7.8% and 37.3%, respectively.
During 1999, the income tax provision was partially offset by the elimination of
the valuation allowance against our deferred tax assets, resulting in the
comparatively lower effective rate.


Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

  For the year ended December 31, 1999, sales of $38.9 million were $8.6
million, or 28.6%, higher than sales of $30.2 million for the previous year.
The following table presents sales by category (in thousands):

<TABLE>
<CAPTION>
                                                             Year ended December 31,                            Change
                                                     ------------------------------------      ------------------------------------
                                                            1998                 1999                Amount               Percent
                                                     ---------------      ---------------      ---------------      ---------------
<S>                                                     <C>                  <C>                  <C>                  <C>
Spinal implant product sales  ..................             $15,367              $20,807               $5,440                 35.4%
Orthobiologic product sales  ...................              14,842               18,049                3,207                 21.6
                                                     ---------------      ---------------      ---------------      ---------------
  Total sales  .................................             $30,209              $38,856               $8,647                 28.6%
                                                     ===============      ===============      ===============      ===============
</TABLE>

  Sales of spinal implant products increased in the year ended December 31, 1999
by $5.4 million, or 35.4%, to $20.8 million, compared to $15.4 million for the
year ended December 31, 1998.  The increase reflects continued market
penetration of the Synergy Spinal System, aided by improved distribution and
territory coverage.

  Sales of orthobiologic products increased by $3.2 million, or 21.6%, to $18.0
million for the year ended December 31, 1999, compared to $14.8 million for the
year ended December 31, 1998.  Our new AGF related products, which were launched
on a nationwide basis during the second quarter of 1999, accounted for $2.8
million of orthobiologic products sales during 1999.  Sales of synthetic bone
products remained relatively level for the two periods.

  Total domestic sales of spinal products and orthobiologic products increased
30.2%, or $7.0 million, to $30.1 million for the year ended December 31, 1999,
compared to $23.1 million for the same period of 1998.  International sales
increased $1.6 million, or 23.4%, to $8.7 million for the year ended December
31, 1999, compared to $7.1 million for the same period of 1998.

  For the year ended December 31, 1999, gross margin as a percentage of sales
was 70.0%, compared to 71.7% for the year ended December 31, 1998.  Spine
products sales, which have a lower gross margin than orthobiologic products
sales, comprised a greater percentage of total sales in 1999 than in 1998.

                                       24
<PAGE>

  Total operating expenses for the year ended December 31, 1999 decreased by
$2.0 million, or 8.2%, to $22.5 million, compared to total operating expenses of
$24.5 million during the same period of 1998.  Excluding merger related
expenses, restructuring charges and non-recurring charges recorded in 1998,
operating expenses increased $3.0 million, or 15.4%, but decreased as a
percentage of sales from 64.6% in 1998 to 57.9% in 1999.  Research and
development expenses in 1999 increased by 14.9%, or $542,000, due primarily to
salaries for additional engineers hired for spinal implant development projects.
Selling and marketing expenses in 1999 increased $2.2 million, or 18.2%,
compared to 1998, primarily due to increased commissions on higher domestic
sales in 1999 and the hiring of additional sales and marketing staff.  General
and administrative expenses increased by $316,000, or 7.8%, in 1999, primarily
as the result of increased corporate bonus expense and higher product liability
insurance premiums resulting from increased sales offset partially by a decrease
in property taxes resulting from the closure of the Ohio facility.

  Total interest and other income were approximately the same in the two
periods, as reduced interest income on lower average cash, cash equivalents and
short-term investments balances in 1999 was mostly offset by reduced interest
expense.  We had lower average cash, cash equivalents and short-term investments
balances in 1999 compared to 1998 due to the payment of merger-related expenses,
restructuring charges and non-recurring charges, the repurchase of 605,000
shares of our common stock and the redemption of convertible debentures.
Interest expense was lower in 1999 than in 1998 due primarily to the write-off
of prepaid debt issuance costs associated with convertible debentures which were
redeemed during 1998.  This redemption also lowered interest expense in 1999.

  In 1998, despite a pre-tax loss, taxable income was recognized as a result of
some disallowed merger cost deductions.  This coupled with the reduction of the
valuation allowance resulted in a net tax provision of $59,000.  In 1999, our
increased profitability eliminated the remaining valuation allowance against our
deferred tax assets.  This resulted in the need to record an income tax
provision for the year ended December 31, 1999 at an effective tax rate of
approximately 7.8%.

Liquidity and Capital Resources

  In 2000, our operations generated positive cash flow of approximately $4.4
million.  Another significant source of cash in 2000 was $1.5 million in
proceeds from the exercise of stock options.  We invest our excess cash in U.S.
Treasury securities and high-grade marketable securities.  At December 31, 2000,
cash, cash equivalents and short-term investments totaled $14.6 million, up $4.8
million from $9.8 million at December 31, 1999.  We also have a $5.0 million
revolving line of credit available to us that had no amount outstanding at
December 31, 2000 and which expires in June 2001.  We currently intend to seek
an extension of that facility.

  We have used and may continue to use our cash, our common stock, or a
combination of both to pay for purchased technologies, product lines, mergers
and acquisitions.  We also intend to continue to invest in the development of
our business.

  We believe we currently possess sufficient resources to meet the cash
requirements of our operations for at least the next year.  However, some of the
aforementioned activities may require cash in excess of that which we currently
possess, and we can give no assurance that we will be able to raise the
additional capital on satisfactory terms, if at all.

  At December 31, 2000, we had no material commitments for capital expenditures.

                                       25
<PAGE>

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

  We are exposed to market risk for changes in interest rates related primarily
to our cash and cash equivalent balances and marketable securities.  However, as
all of our investments are in short-term instruments, we believe that we have no
material market risk exposure.

Item 8.  Financial Statements and Supplementary Data

  The Financial Statements and Supplementary Data of Interpore Cross are listed
and included under Item 14 of this report.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

  None.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

  There is hereby incorporated herein by reference the information appearing
under the caption Election of Directors in the Proxy Statement for the Interpore
International 2001 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2001.

Item 11.  Executive Compensation

  There is hereby incorporated herein by reference the information appearing
under the caption Executive Compensation in the Proxy Statement for the
Interpore International 2001 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2001.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

  There is hereby incorporated herein by reference the information appearing
under the caption Security Ownership of Certain Beneficial Owners and Management
in the Proxy Statement for the Interpore International  2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 2001.

Item 13.  Certain Relationships and Related Transactions

   There is hereby incorporated by reference the information appearing under the
caption Certain Relationships and Related Transactions in the Proxy Statement
for the Interpore International 2001 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission on or before April 30, 2001.

                                       26
<PAGE>

                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

  (a) (1)  The following financial statements are referenced in Part II Item 8
and submitted herewith:
<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                           Number
                                                                                                       -----------
<S>                                                                                                       <C>
  Report of Independent Auditors  ......................................................................    F-2

  Consolidated Balance Sheets at December 31, 1999 and 2000  ...........................................    F-3

  Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999
    and 2000  ..........................................................................................    F-4

  Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
    1998, 1999 and 2000  ...............................................................................    F-5

  Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999
    and 2000  ..........................................................................................    F-6

  Notes to Consolidated Financial Statements  ..........................................................    F-7
</TABLE>

     (2) The following financial statement schedule for the years ended December
         31, 1998, 1999 and 2000 is submitted herewith:

        Schedule II--Valuation and Qualifying Accounts

        All other schedules are omitted because they are not applicable or the
        required information is presented in the financial statements or notes
        thereto.

     (3) The list of exhibits contained in the Index to Exhibits is submitted
        herewith.

  (b)  Reports on Form 8-K

     None.

                                       27
<PAGE>

SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  INTERPORE INTERNATIONAL, INC.


                                  By: /s/  David C. Mercer
                                     -----------------------------
                                  David C. Mercer
                                  Chairman and Chief Executive Officer

Date: March 27, 2001

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                                                     Title                            Date
                                                     -----                            ----
<S>                                  <C>                                      <C>
/s/   David C. Mercer                Chairman of the Board, Chief                March 27, 2001
----------------------------------   Executive Officer and Director       -------------------------
David C. Mercer                      (Principal Executive Officer)


/s/   Joseph A. Mussey               President, Chief Operating Officer          March 27, 2001
----------------------------------   and Director                         -------------------------
Joseph A. Mussey



/s/   Richard L. Harrison            Sr. Vice President--Finance, Chief          March 27, 2001
----------------------------------   Financial Officer and Secretary      -------------------------
Richard L. Harrison                  (Principal Financial and Accounting
                                     Officer)



/s/   David W. Chonette              Director                                    March 27, 2001
----------------------------------                                        -------------------------
David W. Chonette


/s/   William A. Eisenecher          Director                                    March 27, 2001
----------------------------------                                        -------------------------
William A. Eisenecher


/s/   Daniel A. Funk, M.D.           Director                                    March 27, 2001
----------------------------------                                        -------------------------
Daniel A. Funk, M.D.


/s/   Robert J. Williams             Director                                    March 27, 2001
----------------------------------                                        -------------------------
Robert J. Williams
</TABLE>

                                       28
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                   --------------
<S>                                                                                                   <C>
Report of Independent Auditors.....................................................................       F-2

Consolidated Balance Sheets at December 31, 1999 and 2000..........................................       F-3

Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000.........       F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1999
 and 2000..........................................................................................       F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000.........       F-6

Notes to Consolidated Financial Statements.........................................................       F-7

Schedule II--Valuation and Qualifying Accounts.....................................................      F-20
</TABLE>

                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Interpore International, Inc.

  We have audited the accompanying consolidated balance sheets of Interpore
International, Inc. as of December 31, 1999 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000.  Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

  We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Interpore
International, Inc. at December 31, 1999 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.  Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.


                                /s/   Ernst & Young LLP

Orange County, California
February 2, 2001

                                      F-2
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                          CONSOLIDATED BALANCE SHEETS

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                ---------------------------------------
                                                                                      1999                   2000
                                                                                ----------------       ----------------
<S>                                                                                <C>                    <C>
Assets
Current assets:
  Cash and cash equivalents  ...................................................         $ 6,315                $14,610
  Short-term investments  ......................................................           3,459                      -
  Accounts receivable, less allowance for doubtful accounts
  of $516 and $461 in 1999 and 2000, respectively  .............................           8,887                  9,536
  Inventories  .................................................................          13,070                 12,485
  Prepaid expenses  ............................................................             995                  1,091
  Deferred income taxes  .......................................................           1,750                  2,088
  Other current assets  ........................................................             129                    102
                                                                                ----------------       ----------------
Total current assets  ..........................................................          34,605                 39,912
Property, plant and equipment, net  ............................................           1,349                  1,509
Deferred income taxes  .........................................................           2,333                  1,598
Intangible assets, net  ........................................................           2,274                  2,143
Other assets  ..................................................................             232                     71
                                                                                ----------------       ----------------
Total assets  ..................................................................         $40,793                $45,233
                                                                                ================       ================
Liabilities and stockholders' equity
Current liabilities:
  Current portion of capital lease obligations  ................................         $    15                $    10
  Accounts payable  ............................................................           1,046                    886
  Accrued compensation and related expenses  ...................................           1,615                  1,347
  Accrued royalties  ...........................................................             339                    372
  Accrued disposition costs  ...................................................             118                     23
  Accrued merger-related expenses and restructuring charges  ...................             324                     61
  Income taxes payable  ........................................................             326                    188
  Other accrued liabilities  ...................................................             608                    488
                                                                                ----------------       ----------------
Total current liabilities  .....................................................           4,391                  3,375
                                                                                ----------------       ----------------
Long-term obligations:
  Long-term debt  ..............................................................           3,152                      -
  Obligations under capital leases, net  .......................................              13                      -
                                                                                ----------------       ----------------
Total long-term obligations  ...................................................           3,165                      -
                                                                                ----------------       ----------------
Commitments and contingencies
Stockholders' equity:
   Series E convertible preferred stock, voting, par value $.01 per share:
       Authorized - 594,000; issued and outstanding shares - 25,573 at December
       31, 1999 and none at December 31, 2000; aggregate liquidation value of                  -                      -
       $192 at December 31, 1999................................................
   Preferred stock, par value $.01 per share: Authorized shares - 4,406,000;
    outstanding shares - none  .................................................               -                      -
   Common stock, par value $.01 per share: Authorized shares - 50,000,000;
    issued and outstanding shares - 14,272,279 at December 31, 1999 and
    15,026,302 at December 31, 2000  ...........................................             143                    150
  Additional paid-in-capital  ..................................................          45,451                 49,928
  Accumulated deficit  .........................................................          (9,244)                (5,111)
  Accumulated other comprehensive loss  ........................................              (4)                     -
                                                                                ----------------       ----------------
                                                                                          36,346                 44,967
   Less treasury stock, at cost - 605,000 shares at December 31, 1999 and
    December 31, 2000...........................................................          (3,109)                (3,109)
                                                                                ----------------       ----------------
Total stockholders' equity  ....................................................          33,237                 41,858
                                                                                ----------------       ----------------
Total liabilities and stockholders' equity  ....................................         $40,793                $45,233
                                                                                ================       ================
</TABLE>

  See accompanying notes.

                                      F-3
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                               --------------------------------------------------------------
                                                                     1998                   1999                   2000
                                                               ----------------       ----------------       ----------------
<S>                                                                  <C>                    <C>                    <C>
Net sales  .................................................            $30,209                $38,856                $44,319
Cost of goods sold  ........................................              8,552                 11,645                 13,460
                                                               ----------------       ----------------       ----------------
Gross profit  ..............................................             21,657                 27,211                 30,859
                                                               ----------------       ----------------       ----------------
Operating expenses:
  Research and development  ................................              3,650                  4,192                  5,302
  Selling and marketing  ...................................             11,826                 13,978                 15,834
  General and administrative  ..............................              4,035                  4,351                  3,852
  Merger-related expenses  .................................              3,031                      -                      -
  Restructuring charges  ...................................              1,512                      -                      -
  Non-recurring charges  ...................................                474                      -                    268
                                                               ----------------       ----------------       ----------------
Total operating expenses  ..................................             24,528                 22,521                 25,256
                                                               ----------------       ----------------       ----------------
Income (loss) from operations  .............................             (2,871)                 4,690                  5,603
                                                               ----------------       ----------------       ----------------
Interest income  ...........................................                744                    457                    702
Interest expense  ..........................................               (600)                  (342)                  (155)
Other income  ..............................................                362                    400                    444
                                                               ----------------       ----------------       ----------------
Total interest and other income, net  ......................                506                    515                    991
                                                               ----------------       ----------------       ----------------
Income (loss) before taxes  ................................             (2,365)                 5,205                  6,594
Income tax provision  ......................................                 59                    407                  2,461
                                                               ----------------       ----------------       ----------------
Net income (loss)  .........................................            $(2,424)               $ 4,798                $ 4,133
                                                               ================       ================       ================
Net income (loss) per share:
  Basic  ...................................................              $(.17)                  $.36                   $.29
  Diluted  .................................................              $(.17)                  $.35                   $.27
Shares used in computing earnings per share:
  Basic......................................................            13,904                 13,506                 14,043
  Diluted....................................................            13,904                 13,876                 15,140
</TABLE>

See accompanying notes.

                                      F-4
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                             Series E
                                           Convertible                             Accumulated
                                         Preferred Stock  Common Stock  Additional    Other                              Total
                                        ----------------- --------------  Paid-In  Comprehensive  Accumulated Treasury Stockholders'
                                        Shares    Amount  Shares  Amount  Capital       Loss         Deficit    Stock    Equity
                                        ------    ------  ------  ------  -------       ----         -------    ----     -----
<S>                                     <C>       <C>     <C>       <C>    <C>        <C>          <C>           <C>     <C>
Balance at December 31, 1997  ..........    33      $  -  13,766    $138  $43,114      $  -          $(11,618)    $  -     $31,634
  Net loss and comprehensive loss  .....     -         -       -       -        -         -            (2,424)       -      (2,424)
  Exercise of stock options  ...........     -         -     252       3      647         -                 -        -         650
  Issuances under employee stock
   purchase plan........................     -         -      27       -      127         -                 -        -         127
  Debentures converted into common stock     -         -      15       -       73         -                 -        -          73
  Repurchase of common stock  ..........     -         -       -       -        -         -                 -   (3,109)     (3,109)
                                        -------    -----  ------   ------  -------     -----          --------   -------    ------
Balance at December 31, 1998  ..........    33         -  14,060     141   43,961         -           (14,042)  (3,109)     26,951
  Unrealized loss on short-term
   investments (including tax
   benefit of $2)  .....................     -         -       -       -        -        (4)               -         -          (4)
  Net income  ..........................     -         -       -       -        -         -            4,798         -       4,798
                                        -------    -----  ------   ------  -------     -----          --------   -------    ------
  Comprehensive income (loss)   ........     -         -       -       -        -        (4)           4,798         -       4,794
  Exercise of stock options  ...........     -         -      81       1      178         -                -         -         179
  Conversion of preferred stock
   into common stock  ..................    (7)        -       7       -        -         -                -         -           -
  Issuances under employee stock
   purchase plan........................    -          -      24        -      103         -                -         -        103
  Shares issued in purchase of AGF
   technology  .........................    -          -     100        1    1,209         -                -         -      1,210
                                        -------    -----  ------   ------  -------     -----          --------   -------    ------
Balance at December 31, 1999............    26         -  14,272      143   45,451        (4)          (9,244)   (3,109)    33,237
  Unrealized gain on short-term
   investments (including tax
    benefit of $2)  ....................     -         -       -        -        -         4                -         -          4
  Net income  ..........................     -         -       -        -        -         -             4,133        -      4,133
                                        -------    -----  ------   ------  -------     -----          --------   -------    ------
  Comprehensive income   ...............     -         -       -        -        -         4             4,133        -      4,137
  Exercise of stock options  ...........     -         -     242        2    1,543         -                -         -      1,545
  Conversion of preferred stock into
   common stock  .......................   (26)        -      26        -        -         -                -         -          -
  Issuances under employee stock
   purchase plan........................     -         -      16        -       75         -                -         -         75
  Debentures converted into common stock     -         -     470        5    2,859         -                -         -      2,864
                                        -------    -----  ------   ------  -------     -----          --------   -------    ------
Balance at December 31, 2000  ..........     -    $  -    15,026     $150  $49,928     $   -          $(5,111)   $(3,109)  $41,858
                                        =======    =====  ======   ======  =======     =====          ========   =======    ======
</TABLE>

See accompanying notes

                                      F-5
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                            Year ended December 31,
                                                                        -----------------------------------------------------------
                                                                            1998                  1999                  2000
                                                                        ---------------       ---------------       ---------------
<S>                                                                        <C>                   <C>                   <C>
Cash Flows from Operating Activities:
  Net income (loss)  ...............................................            $(2,424)              $ 4,798               $ 4,133
  Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
     Depreciation and amortization  ................................                724                   852                   985
     Loss on disposal of property, plant and equipment  ............                229                     -                     -
     Changes in operating assets and liabilities:
       Accounts receivable  ........................................                172                (2,469)                 (649)
       Inventories  ................................................             (1,741)                 (955)                  585
       Prepaid expenses  ...........................................               (767)                   43                   (96)
       Other assets  ...............................................                  6                   405                    55
       Deferred income taxes  ......................................                108                  (151)                  397
       Accounts payable and accrued liabilities  ...................               (630)                  376                (1,011)
                                                                        ---------------       ---------------       ---------------
     Net cash provided by (used in) operating activities  ..........             (4,323)                2,899                 4,399
                                                                        ---------------       ---------------       ---------------
Cash Flows from Investing Activities:
  Purchases of short-term investments  .............................             (3,937)               (3,465)                    -
  Sales of short-term investments  .................................              8,718                     -                 3,463
  Capital expenditures  ............................................               (796)                 (621)                 (896)
  Expenditures for patent rights  ..................................                (30)                 (146)                  (80)
  Purchase of AGF technology  ......................................                  -                  (526)                  (38)
  Proceeds from sale of dental business, net  ......................                749                     -                     -
                                                                        ---------------       ---------------       ---------------
     Net cash provided by (used in) investing activities  ..........              4,704                (4,758)                2,449
                                                                        ---------------       ---------------       ---------------
Cash Flows from Financing Activities:
  Repurchase of common stock  ......................................             (3,109)                    -                     -
  Repayment of long-term debt and capitalized lease obligations  ...             (1,950)                  (16)                 (173)
  Proceeds from exercise of stock options  .........................                650                   179                 1,545
  Proceeds from employee stock purchase plan  ......................                127                   103                    75
                                                                        ---------------       ---------------       ---------------
     Net cash provided by (used in) financing activities  ..........             (4,282)                  266                 1,447
                                                                        ---------------       ---------------       ---------------
Net increase (decrease) in cash and cash equivalents  ..............             (3,901)               (1,593)                8,295
Cash and cash equivalents at beginning of year  ....................             11,809                 7,908                 6,315
                                                                        ---------------       ---------------       ---------------
Cash and cash equivalents at end of year  ..........................            $ 7,908               $ 6,315               $14,610
                                                                        ===============       ===============       ===============
</TABLE>

See accompanying notes.

                                      F-6
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000

1.  Summary of Significant Accounting Policies

Organization and Description of Business

  Interpore International, Inc. ("Interpore"), doing business as Interpore Cross
International ("Interpore Cross") operates in one business segment: the design,
manufacture and marketing of medical devices for the orthopedic marketplace.
The products are distributed in the United States and internationally.

Basis of Presentation

  The accompanying consolidated financial statements include the accounts of
Interpore Cross and its subsidiaries after elimination of all significant
intercompany transactions.  In May 1998, Interpore merged with Cross Medical
Products, Inc. ("Cross"), a publicly traded Ohio-based worldwide supplier of
spinal implant systems used to treat degenerative conditions and deformities of
the spine.  This merger has been accounted for as a pooling-of-interests.
Certain amounts have been reclassified to conform to the 2000 presentation.

Revenue Recognition

  Revenue from sales of product where the customer immediately accepts title is
recorded at the time of shipment.  Revenue from sales of consigned inventory is
recorded upon receipt of written acknowledgement from sales agents or customers
that the product has been used in a surgical procedure.  Provision is made
currently for estimated product returns based on historical experience and other
known factors.

  In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, ("SAB
101").  This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements and states that revenue is realized or realizable and earned only
when all of the following criteria are met:  persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
seller's price to the buyer is fixed and determinable; and collectibility is
reasonably assured.   In meeting the criterion that delivery has occurred or
services have been rendered, the SEC staff indicates that customer acceptance
must be obtained before revenue recognition is appropriate in situations where
customer acceptance is a contract requirement.  This applies without
consideration of the significance or cost of any post-shipment services that
must be performed to obtain such customer acceptance.  Interpore Cross' current
revenue recognition policies are consistent with criteria summarized in SAB101.

                                      F-7
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Per Share Information

  Basic earnings per share (EPS) is calculated by dividing net earnings by the
weighted average number of common shares outstanding for the period.  Diluted
EPS reflects the assumed conversion of all dilutive securities, consisting of
employee stock options, convertible securities and warrants.  The following
table presents the computation of net income (loss) per share (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                                        Year ended December 31,
                                                                    ------------------------------------------------------------
                                                                        1998                     1999                 2000
                                                                    ---------------         ---------------      ---------------
<S>                                                                    <C>                        <C>                  <C>
Net income (loss)  ...............................................          $(2,424)                $ 4,798              $ 4,133
                                                                    ===============         ===============      ===============
Shares used in computing net income (loss) per share--basic
  Weighted average common shares outstanding  ....................           13,904                  13,506               14,043
Effect of dilutive securities:
  Weighted average convertible preferred stock  ..................                - /(1)/                31                    6
  Common share equivalents outstanding  ..........................                - /(1)/               339                1,091
                                                                    ---------------         ---------------      ---------------
Shares used in computing net income (loss) per share--diluted  ...           13,904                  13,876               15,140
                                                                    ===============         ===============      ===============
Basic earnings per share  ........................................          $  (.17)                $   .36              $   .29
Diluted earnings per share  ......................................          $  (.17)                $   .35              $   .27
---------------
</TABLE>

/(1)/Effect would have been anti-dilutive, accordingly, the amounts are excluded
     from shares used in computing diluted earnings per share. Weighted average
     convertible preferred stock would have been 33 shares and common share
     equivalents outstanding would have been 346 shares.

  Shares issuable from the convertible subordinated debentures were excluded
from the calculation of diluted earnings per share in all years because the
effect would have been anti-dilutive.

Concentrations of Business and Credit Risk

  Interpore Cross operates in worldwide markets which are subject to rapid
technological advancement and significant government regulation.  The
introduction of technologically advanced products by competitors and increased
regulatory or trade barriers could have a material impact on the future
operations of Interpore Cross.

  In the normal course of business, Interpore Cross provides credit to its
customers.  At December 31, 2000, 61% of Interpore Cross' accounts receivable
are from domestic customers and 39% are from foreign customers.  Interpore Cross
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses which, when realized, have been within the range of
management's expectations.  Sales to domestic customers were 77%, 78% and 80% of
total sales in 1998, 1999 and 2000, respectively, and sales to foreign customers
were 23%, 22% and 20% of total sales in 1998, 1999 and 2000, respectively.  All
sales to foreign customers for the periods presented were denominated in United
States dollars.

  In the U.S., there are no significant customer concentrations, as Interpore
Cross invoices hospitals directly for product used or shipped.  However, in the
international markets, Interpore Cross has one significant distributor that
accounted for approximately 24% of its 2000 international sales and 5% of its
2000 worldwide sales.

                                      F-8
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Some of the products and materials supplied by Interpore Cross' vendors are
currently sole-sourced, but the Company believes that it could locate
alternative vendors for supply of these components.  However, the
UltraConcentrator, one of the products used to collect AGF(TM), is manufactured
under an exclusive supply agreement with a vendor that itself has a sole source
of supply of the contained filter material.  Although the filter material is not
readily available through alternative sources, Interpore Cross believes that
there are suppliers that could supply alternate materials with probable
equivalent function.  In the event that a re-engineering of the product were
necessary due to an interruption in supply from our current vendor, delays in
product availability could occur and significant costs could be incurred, both
of which would have a material adverse effect on Interpore Cross' operations.

Stock Option Plans

  Interpore Cross accounts for stock compensation to employees using the
intrinsic value method provided for by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations, and
provides supplementary disclosures in the notes to the consolidated financial
statements of the differences between using this method and the fair value
method as required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation.

Advertising

  Interpore Cross expenses as incurred the costs of advertising which totaled
$201,000, $219,000 and $198,000 for the years ended December 31, 1998, 1999 and
2000, respectively.

Research and Development

  Expenditures for research and development are expensed as incurred.

Cash, Cash Equivalents and Short-term Investments

  Interpore Cross invests excess cash in United States Treasury securities and
high grade marketable securities.  Highly liquid investments with a maturity of
three months or less at the date of purchase are classified as cash equivalents.
Short-term investments consist of highly liquid investments with a maturity of
more than three months when purchased.  Pursuant to Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, Interpore Cross' short-term investments are classified as
available-for-sale securities and are reported at fair market value.

Inventories

  Inventories are stated at the lower of first-in, first-out average cost or
market.  Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
                                                                 December 31,
                                                    ------------------------------------
                                                         1999                 2000
                                                    ---------------      ---------------
<S>                                                    <C>                  <C>
  Raw material  ...............................            $ 1,159              $ 1,202
  Work-in-process  ............................                442                  575
  Finished goods  .............................             11,469               10,708
                                                   ---------------      ---------------
                                                           $13,070              $12,485
                                                   ===============      ===============
</TABLE>

                                      F-9
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property, Plant and Equipment

  Property, plant and equipment are stated at cost and are comprised of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                    -------------------------------------
                                                                                         1999                  2000
                                                                                    ---------------       ---------------
<S>                                                                                    <C>                   <C>
  Machinery and equipment...........................................................        $ 3,418               $ 4,045
  Furniture and fixtures............................................................            644                   882
  Leasehold improvements............................................................            627                   658
                                                                                    ---------------       ---------------
  Property, plant and equipment, at cost............................................          4,689                 5,585
  Less accumulated depreciation and amortization....................................         (3,340)               (4,076)
                                                                                    ---------------       ---------------
  Property, plant and equipment, net................................................        $ 1,349               $ 1,509
                                                                                    ===============       ===============
</TABLE>
  Depreciation is provided using the straight-line method over the following
estimated useful lives:
<TABLE>
<S>                                                                                   <C>
Machinery and equipment..........................................................      3 to 5 years
Furniture and fixtures...........................................................      5 years
Leasehold improvements..........................................................       Lesser of estimated useful
                                                                                       life or term of lease
</TABLE>

Intangible Assets

  Intangible assets include patents and license rights.  The patents and license
rights are amortized on a straight-line basis over their useful lives.
Amortization begins at the time the patents are issued.  Management periodically
evaluates the recoverability of intangible assets based on undiscounted future
cash flows.  Amortization expense for the years ended December 31, 1998, 1999
and 2000 was $75,000, $113,000 and $249,000, respectively.  Accumulated
amortization of intangible assets was $197,000 and $446,000 at December 31, 1999
and 2000, respectively.

Consolidated Statements of Cash Flows

  Interpore Cross paid income taxes of $1,053,000, $163,000 and $1,968,000 and
interest of $416,000, $294,000 and $152,000 in 1998, 1999 and 2000,
respectively.

Long-Lived Assets

  In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets, Interpore Cross reviews
long-lived assets and certain intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Interpore Cross believes no impairment of the carrying value of
its long-lived assets existed at December 31, 2000.

Use of Estimates

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes.  Actual results could differ from those estimates.

                                      F-10
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Recent Accounting Pronouncements

  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards  No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133).  SFAS 133 is effective for fiscal years
beginning after June 15, 2000.  SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value.  Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income (loss) depending on whether a derivative is designed
as part of a hedge transaction and, if so, the type of hedge transaction
involved.  Interpore Cross does not expect that adoption of SFAS 133 will have a
material impact on its consolidated financial position or results of operations.

2.  Business Combination

  The merger of Interpore and Cross was approved by the stockholders of both
companies on May 6, 1998 and became effective on May 7, 1998.  Shareholders of
Cross received 1.275 shares of Interpore common stock for each share of issued
and outstanding Cross common stock.  Accordingly, Interpore issued 6.7 million
shares of its common stock to Cross shareholders in exchange for all of the
outstanding common stock of Cross.  In addition, approximately 895,000 shares of
Interpore Cross common stock were reserved for issuance upon the exercise of
assumed Cross stock options.  The merger was accounted for as a pooling-of-
interests.

  During the second quarter of 1998, Interpore Cross recorded merger-related
expenses and restructuring charges of $3.0 million and $1.5 million,
respectively.  The merger-related expenses included legal, accounting and
administrative costs incurred in connection with the merger of Interpore and
Cross.  The restructuring charges were associated with the closing of the
Dublin, Ohio facility and included severance benefits for 23 employees not
remaining with Interpore Cross, the write-off of fixed assets which were not
transferred to Interpore Cross' Irvine, California headquarters, and the accrual
of remaining lease payments for the Dublin facility.  During the third and
fourth quarters of 1998, Interpore Cross recorded $474,000 of non-recurring
charges related to the relocation of assets and employees from the Dublin, Ohio
facility to the Irvine, California headquarters.

  Restructuring costs and related liabilities for the two years in the period
ended December 31, 2000 are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                                          Remaining
                                                                     Severance              lease
                                                                      benefits             payments              Total
                                                                 ---------------      ---------------      ---------------
<S>                                                                 <C>                  <C>                  <C>
  Accrued restructuring costs at
    December 31, 1998............................................           $284                 $425                 $709
  1999 payments..................................................            196                  189                  385
                                                                 ---------------      ---------------      ---------------
  Accrued restructuring costs at
    December 31, 1999............................................             88                  236                  324
  2000 payments..................................................             88                  175                  263
                                                                 ---------------      ---------------      ---------------
  Accrued restructuring costs at
    December 31, 2000............................................   $       -                    $ 61                 $ 61
                                                                 ===============      ===============      ===============
</TABLE>

  Interpore Cross expects that the accrued restructuring costs of $61,000 at
December 31, 2000 is adequate to cover remaining exposures and will be paid over
the next 6 months.

                                      F-11
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Selected financial information for the combining entities included in the
consolidated statements of operations for the four months ended April 30, 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                               For the period ended
                                                                                                     April 30,
                                                                                                       1998
                                                                                            ------------------------
<S>                                                                                                  <C>
Net sales
 Interpore...............................................................................                  $4,664
 Cross...................................................................................                   4,647
                                                                                               ------------------
Combined.................................................................................                  $9,311
                                                                                               ==================
Net income
 Interpore...............................................................................                  $  770
 Cross...................................................................................                      74
                                                                                               ------------------
Combined.................................................................................                  $  844
                                                                                               ==================
</TABLE>

3.  Acquisition of AGF Technology

  In December, 1999, Interpore Cross purchased all the intellectual property of
Quantic Biomedical, Inc. which included the patents and technology for making
AGF.  The purchase price of $1.9 million included a cash payment of $500,000,
100,000 unregistered shares of Interpore Cross common stock with a fair market
value of $551,000 and 200,000 stock purchase warrants which vest over a two-year
period at exercise prices ranging from $7.13 to $8.63 with a fair market value
of $659,000.  Additionally, previously paid unamortized license fees of $167,000
were reallocated to the purchase price.  The total purchase price has been
recorded as an intangible asset and is being amortized over a ten-year period.

4.  Fair Value of Financial Instruments

  The estimated fair value of financial instruments is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                December 31, 1999                         December 31, 2000
                                                     ------------------------------------      ------------------------------------
                                                          Carrying               Fair               Carrying               Fair
                                                           Amount               Value                Amount               Value
                                                     ---------------      ---------------      ---------------      ---------------
<S>                                                     <C>                  <C>                  <C>                  <C>
Assets:
  Cash and cash equivalents  .........................        $6,315               $6,315              $14,610              $14,610
  Short-term investments  ............................         3,459                3,459                    -                    -
Liabilities:
  Long-term debt  ....................................        $3,152               $3,897              $     -              $     -
</TABLE>

  Due to the short-term nature of cash, cash equivalents and short-term
investments, the carrying amount approximates the fair value.  The fair value of
the long-term debt, consisting of Convertible Subordinated Debentures, is based
upon the greater of the fair market value of Interpore Cross common stock into
which the Debentures are convertible, or the carrying amount.

                                      F-12
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.  Long-Term Obligations

  Long-term obligations consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                    -------------------------------------
                                                                                          1999                  2000
                                                                                    ---------------      ----------------
<S>                                                                                    <C>                  <C>
Convertible Subordinated Debentures, due in June 2003 plus interest at
 8.5%, payable semi-annually  .................................................              $3,152                  $  -
Obligations under capital leases  .............................................                  28                    10
                                                                                    ---------------      ----------------
                                                                                              3,180                    10
Less current maturities  ......................................................                  15                    10
                                                                                    ---------------      ----------------
                                                                                             $3,165                  $  -
                                                                                    ===============      ================
</TABLE>

  The 8.5% Convertible Subordinated Debentures (the "Debentures") due June 1,
2003 were convertible at any time before maturity, unless previously redeemed,
into shares of Interpore Cross common stock at a conversion price of $6.37 per
share.  Pursuant to the terms of the underlying indenture, upon the merger of
Interpore and Cross, Debenture holders were allowed to request redemption until
June 26, 1998 at 101% of the principal amount thereof, plus accrued interest.
Requests for redemption totaling $1.8 million were made.  During 1998, $97,000
of Debentures were converted into 15,221 shares of Interpore Cross common stock.
There were no conversions recorded in 1999.  On June 14, 2000, Interpore Cross
notified the holders that the Debentures would be redeemed, if not earlier
converted, effective August 1, 2000.  For the current period through August 1,
2000, Debentures totaling $3.0 million were converted into 470,000 shares of
common stock, and $155,000 of the Debentures were redeemed.  The fair value of
the Debentures was approximately $3.9 million at December 31, 1999.

  Amortization of offering costs, related to the issuance of the Debentures, of
$206,000, $48,000 and $25,000 for the years ended December 31, 1998, 1999 and
2000, respectively, is included in interest expense.

  Interpore Cross has available a $5 million line of credit facility with its
primary bank.  The line is secured by substantially all of the assets of
Interpore Cross, bears interest at the bank's prime rate (9.5% at December 31,
2000), and matures June 2001.  The facility contains certain financial covenants
with which Interpore Cross was in compliance at December 31, 2000.  No amount
was outstanding under the facility at December 31, 2000.

6.  Stockholders' Equity

Series E Convertible Preferred Stock

  On March 1, 2000, Interpore Cross common stock closed above $10.00 for the
twentieth day out of 30 consecutive trading days and accordingly, as provided in
the Series E Preferred Stock Agreement, all of the outstanding Series E
Preferred Stock converted into common stock.

Stock Options

  Interpore Cross has seven stock option plans that provide for the granting of
incentive stock options or non-qualified stock options to officers, key
employees, directors and consultants.  The 1995 Stock Option Plan (the "1995
Plan"), the Stock Option Plan for Non-Employee Directors (the "Directors Plan"),
the 1999 Consultants Stock Option Plan (the "Consultants Plan") and the 2000
Equity Participation Plan (the "2000 Plan") are the only plans with stock option
awards available for grant.  The other three plans have either expired or have
been terminated with respect to future option grants, but have options
outstanding and exercisable at December 31, 2000.  Options outstanding under
Interpore Cross' seven stock option plans generally vest over a four- or five-
year period, and expire either six years or ten years from the date of grant.

                                      F-13
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  At December 31, 2000 there were 123,375 shares available for grant under the
1995 Plan, all of which may be granted in 2001.  The Directors Plan provides for
a maximum of 200,000 shares to be issued pursuant to options granted under the
plan.  At December 31, 2000, there were approximately 97,000 shares available
for grant under the Directors Plan.  The Consultants Plan provides for a maximum
of 300,000 shares to be issued pursuant to options granted under the plan.  All
300,000 shares were available for grant at December 31, 2000.  The 2000 Plan
provides for a maximum of 1.0 million shares to be issued pursuant to options
granted under the plan.  All 1.0 million shares were available for grant at
December 31, 2000.

  The following is a summary of stock option activity and weighted average
exercise price per share for periods indicated:

<TABLE>
<CAPTION>
                                                                                                             Weighted
                                                                                                              Average
                                                                                                             Exercise
                                                                                          Shares              Price
                                                                                    ---------------      ---------------
<S>                                                                                    <C>               <C>
Outstanding at December 31, 1997  ...............................................         2,395,678           $5.24
  Granted  ......................................................................           305,818            5.41
  Exercised  ....................................................................          (260,961)           2.66
  Forfeited and expired  ........................................................          (219,788)           5.77
                                                                                    ---------------
Outstanding at December 31, 1998  ...............................................         2,220,747            5.52
  Granted  ......................................................................           428,000            4.76
  Exercised  ....................................................................           (80,937)           2.21
  Forfeited and expired  ........................................................          (164,880)           6.72
                                                                                    ---------------
Outstanding at December 31, 1999  ...............................................         2,402,930            5.41
  Granted  ......................................................................           531,000            7.61
  Exercised  ....................................................................          (256,582)           5.39
  Forfeited and expired  ........................................................          (258,155)           6.27
                                                                                    ---------------
Outstanding at December 31, 2000  ...............................................         2,419,193            5.80
                                                                                    ===============
Options exercisable at:
  December 31, 1998  ............................................................         1,704,684           $5.49
  December 31, 1999  ............................................................         1,706,805            5.54
  December 31, 2000  ............................................................         1,622,693            5.50
Estimated fair value per share of options granted during year
  1998  .........................................................................                             $3.80
  1999  .........................................................................                              3.13
  2000  .........................................................................                              5.02
</TABLE>

  The weighted average remaining contractual life of stock options outstanding
at December 31, 1998, 1999 and 2000 were approximately 5.2, 5.4 and 5.1 years,
respectively.

                                      F-14
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Summary information about stock options outstanding at December 31, 2000
follows:

<TABLE>
<CAPTION>
                                                                                                               Exercisable at
                                          Outstanding at December 31, 2000                                    December 31, 2000
                       -------------------------------------------------------------------     -------------------------------------

                                                      Weighted
                                                      Average
                                                     Remaining
                                                    Contractual               Weighted                               Weighted
    Range of                                            Life                   Average                                Average
 Exercise Price               Shares                 (in Years)            Exercise Price            Shares        Exercise Price
----------------           -----------              ------------           --------------           ----------     --------------
<S>                         <C>                       <C>                      <C>                   <C>               <C>
  $1.00 - $ 3.00             260,760                     1.5                    $1.56                 260,760          $1.56
  $3.01 - $ 5.00             593,475                     7.1                     4.63                 245,850           4.67
  $5.01 - $ 7.00             752,983                     3.4                     5.84                 711,483           5.86
  $7.01 - $ 9.00             794,975                     6.3                     7.95                 404,600           7.93
  $9.01 - $12.13              17,000                     9.3                     9.83                       -              -
                          ----------                                                                ---------
   $1.00 - $12.13          2,419,193                     5.1                     5.80               1,622,693           5.50
                          ==========                                                                =========
</TABLE>

Employee Stock Purchase Plan

  Interpore Cross has a qualified employee stock purchase plan which allows
employees to purchase shares of Interpore Cross common stock every six months
through payroll deductions.  The purchase price for the shares is 85% of the
lesser of the fair market value of such shares on the first or last day of each
six-month period.  The plan provides for a maximum of 300,000 shares to be
issued pursuant to the plan.  As of December 31, 2000, 106,877 shares of common
stock had been issued pursuant to the plan.

Stockholder Rights Plan

  Under Interpore Cross' Stockholder Rights Plan, every share of Interpore Cross
common stock currently issued or to be issued is accompanied by one right, and
every common share issued upon conversion of Interpore Cross preferred stock
also will be accompanied by one right.  The plan provides for the rights to
become exercisable upon the earlier to occur of (i) ten days following the
announcement that a person or group of persons has acquired or obtained the
right to acquire 15% or more of Interpore Cross common stock, or (ii) ten days
following the announcement or commencement of a tender offer which would result
in ownership of 15% or more of the common stock.

  If any person or group of persons acquires 15% or more of Interpore Cross
common stock, each right, once exercisable and excluding any rights acquired by
the 15% holder, will entitle its holder to purchase that number of additional
shares of Interpore Cross common stock having a market value of twice the
rights' exercise price.  If Interpore Cross is involved in a merger or other
business combination involving the exchange of Interpore Cross common stock for
stock of an acquiring company at any time after the rights become exercisable,
each right will entitle its holder to purchase that number of the acquiring
company's common stock having a market value of twice the rights' exercise
price.

  The rights' current exercise price is $33.00.  The exercise price and the
number of shares issuable upon exercise are subject to adjustment from time to
time to prevent dilution.  The rights will expire on November 17, 2007, subject
to Interpore Cross' right to extend such date, unless earlier redeemed or
exchanged by Interpore Cross or terminated.  Interpore Cross is entitled to
redeem the rights at one cent per right at any time before they become
exercisable.

                                      F-15
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Treasury Stock

  In November 1998, Interpore Cross' Board of Directors approved a plan to
repurchase up to 4.0 million shares of Interpore Cross common stock.  Through
December 31, 1998, Interpore Cross repurchased and placed into treasury 605,000
shares at a cost of approximately $3.1 million under this program.  The
repurchase approval terminated following the 605,000 share repurchase.

Accounting for Stock-Based Compensation

  Interpore Cross applies Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees,  and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, requires use of option valuation models that were not developed
for use in valuing employee stock options.  Under APB 25, because the exercise
price of Interpore Cross' employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

  Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if Interpore Cross had accounted for
employee stock options granted on or after January 1, 1995 under the fair value
method of SFAS 123.  The fair value for these options was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: a risk-free interest rate of 6%, a volatility
factor of the expected market price of Interpore Cross common stock of .75 in
1998 and .67 in 1999 and 2000, a weighted-average expected life of the options
of six years, and no dividend yield.

  For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods.  Interpore Cross' pro
forma information, which reflects the charges related to options issued in 1998,
1999 and 2000 and may not be indicative of such charges in future periods, is as
follows:

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                    ----------------------------------------------------------
                                                                           1998                  1999                 2000
                                                                    ---------------       ---------------      ---------------
<S>                                                                    <C>                   <C>                  <C>
Pro forma net income (loss) (in thousands)...................            $(3,138)               $3,958               $3,054
Pro forma basic net income (loss) per share..................            $  (.23)               $  .29               $  .22
Pro forma diluted net income (loss) per share................            $  (.23)               $  .29               $  .20
</TABLE>

7.  Income Taxes

  Interpore Cross uses the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes.  Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.  Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.

                                      F-16
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  A reconciliation of the income tax provision (benefit) using the federal
statutory rate to the book provision for income taxes follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                    --------------------------------------------------------
                                                                        1998                  1999                  2000
                                                                    ---------------       ---------------       ------------
<S>                                                                    <C>                   <C>                   <C>
Statutory federal provision (benefit) for income taxes  .........       $ (804)              $ 1,770                $2,242
Increase (decrease) in taxes resulting from:
 State tax, net of federal benefit  .............................           26                   131                   239
 Research and development tax credits  ..........................            -                    35                     -
 Reduction in valuation allowance  ..............................         (211)               (1,609)                    -
 Permanent differences and other  ...............................        1,048                    80                   (20)
                                                                    ----------             ---------              --------
Income tax provision   ..........................................       $   59               $   407                $2,461
                                                                    ==========             =========              ========
</TABLE>

  Significant components of the income tax provision (benefit) are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                    -----------------------------------------------------------
                                                                          1998                  1999                  2000
                                                                    ---------------       ---------------       ---------------
<S>                                                                    <C>                   <C>                   <C>
Current expense:
   Federal..........................................................          $ (54)                $ 277                $1,783
   State............................................................              5                   281                   281
                                                                    ---------------       ---------------       ---------------
Total current.......................................................            (49)                  558                 2,064
                                                                    ---------------       ---------------       ---------------
Deferred expense (benefit):
   Federal..........................................................             85                   (68)                  350
   State............................................................             23                   (83)                   47
                                                                    ---------------       ---------------       ---------------
Total deferred......................................................            108                  (151)                  397
                                                                    ---------------       ---------------       ---------------
Total income tax provision..........................................          $  59                 $ 407                $2,461
                                                                    ===============       ===============       ===============
</TABLE>

  At December 31, 2000, Interpore Cross has unused net operating loss
carryforwards of approximately $4.3 million for federal income tax purposes
which expire beginning in 2005.  Interpore Cross also has research and
development tax credit and alternative minimum tax credit carryforwards of
approximately $325,000 for federal tax purposes and $33,000 for California tax
purposes.  The federal research and development tax credit carryforward will
begin to expire in 2002.  Prior to 1995, a valuation allowance was recorded to
entirely offset the tax benefits of the federal carryforwards.  In 1998 and
1999, the valuation allowance was reduced, and ultimately eliminated, to
recognize the future tax benefits which management believes are more likely than
not to be realized.

  The Tax Reform Act of 1986 includes provisions which significantly limit the
potential use of net operating losses and tax credit carryforwards in situations
where there is a change in ownership, as defined, of more than 50% during a
cumulative three-year period.  Accordingly, if a change in ownership occurs, the
ultimate benefit realized from these carryforwards may be significantly reduced
in total, and the amount that may be utilized in any given year may be
significantly limited.  California has enacted similar legislation.  Interpore
Cross has had stock issuances during the past three years and as a result of the
merger with Cross, a greater than 50% change in ownership occurred during the
year ended December 31, 1998.  Accordingly, the use of these carryforwards will
be limited to approximately $2.3 million per year.

                                      F-17
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In addition to the net operating losses discussed above, Interpore Cross has
federal net operating loss carryforwards at December 31, 2000 of approximately
$4.6 million resulting from the acquisition of Interpore Orthopaedics, Inc.
("Orthopaedics").  As a result of the acquisition, Orthopaedics experienced a
more than 50% ownership change.  Accordingly, under the provisions of the 1986
Tax Reform Act, the use of Orthopaedics' net operating loss carryforwards is
limited to approximately $300,000 per year.  These carryforwards expire
beginning in the year 2002.  As a result of the annual limitation, it is
estimated that a maximum of $1.3 million in net operating loss carryforwards
will be available for use prior to expiration.  The ultimate realization of the
benefits of these loss carryforwards is dependent on future profitable
operations of Orthopaedics.

  Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  The components of the
net deferred tax asset consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                         -----------------------------------
                                                                               1999                 2000
                                                                         --------------        -------------
<S>                                                                       <C>                  <C>
Deferred tax assets:
 Interpore net operating loss carryforwards  ..........................          $2,097               $1,451
 Orthopaedics net operating loss carryforwards  .......................             538                  430
 Research and development and alternative minimum
  tax credit carryforwards  ...........................................             468                  379
 Reserves and accruals not currently deductible for tax purposes  .....             489                  357
 Inventory capitalization  ............................................             361                  901
 Depreciation not currently deductible for tax purposes  ..............             130                  168
                                                                              ---------            ---------
Total deferred tax asset  .............................................          $4,083               $3,686
                                                                              =========             ========
</TABLE>

8.  Commitments and Contingencies

License Agreements

  Interpore Cross has agreements with its Synergy System Advisors under which it
pays royalties ranging from 5% to 7% of net revenues generated from the sale of
certain products within the Synergy Spinal System.  Royalties are paid to the
developers of the AGF technology at a rate of 5% of certain products within this
product group.

Litigation

  On September 5, 2000, our wholly-owned subsidiary, Cross, filed suit in the
U.S. District Court, Central District of California, against Depuy AcroMed,
Inc., a Johnson & Johnson company and Biedermann Motech GmbH, which alleges that
Depuy Acromed has infringed and continues to infringe Cross' U.S. Patent Nos.
5,466,237 and 5,474,555.  These patents relate to the VLS or Variable Locking
Screw technology embodied in certain components of our Synergy Spinal System.
The Complaint seeks damages for willful past and continuing infringement of the
patents.  The Complaint also seeks a declaratory judgment against Depuy Acromed
and Biedermann Motech that Cross is not infringing Biedermann Motech's patent
no. 5,207,678.  Depuy AcroMed has responded to the Complaint denying all claims,
alleging that Cross' patents are invalid and unenforceable, and alleging that it
does not infringe.

  Aside from the patent litigation, the nature of our business subjects us to
products liability and various other legal proceedings from time to time.  We
are currently involved in legal proceedings incidental to the normal conduct of
our business.  We do not believe that any liabilities relating to the legal
proceedings to which we are a party are likely to be, individually or in the
aggregate, material to our consolidated financial condition or results of
operations.

                                      F-18
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9.  Lease Commitments

  Future minimum rentals under noncancelable operating leases for manufacturing
and office facilities and equipment at December 31, 2000 are as follows (in
thousands):

<TABLE>
   <S>                                                               <C>
    2001  ........................................................    $  686
    2002  ........................................................       557
    2003  ........................................................        54
    Thereafter  ..................................................         -
                                                                      ------
                                                                      $1,297
                                                                      ======
</TABLE>

  Rent expense was $706,000, $640,000 and $698,000 in 1998, 1999 and 2000,
respectively.

  The lease for Interpore Cross' principal office and manufacturing facility,
which expires January 31, 2003, provides a right to extend the lease for an
additional five years at the fair market lease rate of the facility on the
extension date, but not less than the rate paid by Interpore Cross during the
month immediately preceding the commencement of the extension period.

12.  Quarterly Results (unaudited)

  The following table presents a summary of the quarterly results of operations
for 1999 and 2000 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                        Quarter
                                                   -----------------------------------------------------------------------------
                                                         First                Second               Third                Fourth
                                                   ---------------      ---------------      ---------------      ---------------
<S>                                                   <C>                  <C>                  <C>                  <C>
1999
Net sales  .........................................       $ 8,986              $ 9,642              $ 9,549              $10,679
Gross profit  ......................................         6,177                6,696                6,898                7,440
Net income  ........................................         1,082                1,083                1,394                1,239
Net income per share--basic  .......................       $   .08              $   .08              $   .10              $   .09
Net income per share--diluted  .....................       $   .08              $   .08              $   .10              $   .09

2000
Net sales  .........................................       $11,443              $11,330              $10,613              $10,933
Gross profit  ......................................         7,891                7,885                7,494                7,589
Net income  ........................................         1,157                  974                1,178                  824
Net income per share--basic  .......................       $   .08              $   .07              $   .08              $   .06
Net income per share--diluted  .....................       $   .08              $   .07              $   .08              $   .06
</TABLE>

                                      F-19
<PAGE>

                         INTERPORE INTERNATIONAL, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                  Years ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                    Balance at                                                   Balance at
                                                   Beginning of        Additions                                   End of
                    Description                       Period          (Deductions)        Write-offs               Period
----------------------------------------------------------------    --------------      --------------       -------------------
<S>                                                <C>               <C>                 <C>                   <C>
Year ended December 31, 1998:
  Allowance for doubtful accounts receivable  ......  $  370,000        $  196,000            $ 60,000            $  506,000
  Reserve for excess and obsolete inventory  .......     717,000           120,000                   -               837,000
Year ended December 31, 1999:
  Allowance for doubtful accounts receivable  ......  $  506,000        $  120,000            $110,000            $  516,000
  Reserve for excess and obsolete inventory  .......     837,000         1,198,000             598,000             1,437,000
Year ended December 31, 2000:
  Allowance for doubtful accounts receivable  ......  $  516,000        $  120,000            $175,000            $  461,000
  Reserve for excess and obsolete inventory  .......   1,437,000         1,394,000                   -             2,831,000
</TABLE>

                                      F-20
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                               Description
---------                            -----------
<C>         <S>
     3.01   Certificate of Incorporation of Interpore International, Inc. as amended (1)
     3.02   Bylaws of Registrant (1)
     3.03   Amendment Number One to Bylaws (16)
     4.01   Rights Agreement dated November 19, 1998, between Interpore International, Inc. and U.S. Stock Transfer
            Corporation, which includes the form of Certificate of Determination of the Series A Junior
            Participating Preferred Stock of Interpore International, Inc. as Exhibit A, the form of Right
            Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (2)
     4.02   Registration Rights Agreement dated December 8, 1999 by and between Interpore International, Inc., John
            A. Dawdy and Andrew G. Hood (20)
    10.01   Cancellation and Release Agreement dated March 1, 1993 among Registrant, Interpore Orthopaedics, Inc.,
            Pfizer, Inc. and Howmedica, Inc. (3)
    10.02   Single Tenant Lease dated July 25, 1991 between Registrant and The Irvine Company as amended by a Third
            Amendment to Lease dated December 11, 1996 (4);
    10.03   Amended and Restated Loan and Security Agreement dated June 22, 1999 among Registrant, Interpore
            Orthopaedics, Inc., Cross Medical Products, Inc., Interpore Cross International Inc., and Silicon Valley
            Bank (19)  and Loan Modification Agreement dated June 21, 2000 (22)
    10.04   Amended and Restated Stock Option Plan dated March 19, 1991 (6), First Amendment to the Amended and
            Restated Stock Option Plan, effective October 15, 1991 (3); Amendment to the Amended and Restated Stock
            Option Plan dated September 17, 1994 (7)
    10.05   1995 Stock Option Plan (8)
    10.06   Stock Option Plan for Non-Employee Directors of Interpore International (9)
    10.07   Danninger Medical Technology, Inc. Amended and Restated 1984 Non-Statutory Stock Option Plan (10)
    10.08   Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive Stock Option Plan (10)
    10.09   Cross Medical Products Inc. Amended and Restated 1994 Stock Option Plan (10)
    10.10   Asset Purchase Agreement dated March 12, 1997, among Cross Medical Products, Inc., Danninger Healthcare,
            Inc. and OrthoLogic Corp. (11)
    10.11   Indenture concerning 8.5% Convertible Subordinated Debentures between Cross Medical Products, Inc. and
            Fifth Third Bank (12)
    10.12   Supplemental Indenture between Interpore International, Inc. and Cross Medical Products, Inc. and Fifth
            Third Bank (5)
    10.13   Form of Indemnification Agreement (13)
    10.14   Schedule of Parties to Form of Indemnification Agreement (14)
    10.15   Agreement between Dr. Edward Funk and Cross Medical Products, Inc. dated February 11, 1998 (15)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                               Description
---------                            -----------
<C>         <S>
    10.16   Form of Employment Agreement dated July 31, 2000 / August 30, 2000 between Interpore International,
            Inc. and its executive officers (23)
    10.17   Schedule of Parties to Form of Employment Agreement dated July 31, 2000 / August 30, 2000 (23)
    10.18   1999 Consultants Stock Option Plan (17)
    10.19   Amended and Restated Employee Qualified Stock Purchase Plan dated November 13, 1998 (18)
    10.20   Asset Purchase Agreement dated December 8, 1999, by and among Interpore Orthopaedics, Inc.,
            Quantic Biomedical, Inc., Quantic Biomedical Partners, John A. Dawdy and Andrew G. Hood (20)
    10.21   2000 Equity Participation Plan (21)
    21.01   Subsidiaries of the Registrant
    23.01   Consent of Ernst & Young LLP, Independent Auditors
</TABLE>

(1)  Incorporated by reference from our Registration Statement on Form S-4,
     Registration No. 333-49487.
(2)  Incorporated by reference from our Current Report on Form 8-K dated
     December 1, 1998.
(3)  Incorporated by reference from our Registration Statement on Form S-1,
     Registration No. 33-69872.
(4)  Incorporated by reference from our Current Report on Form 8-K dated
     February 11, 1998.
(5)  Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 1998.
(6)  Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 33-77426.
(7)  Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 33-86290.
(8)  Incorporated by reference from our Proxy Statement for the 1994 Annual
     Meeting of Shareholders.
(9)  Incorporated by reference from our Proxy Statement for the 1995 Annual
     Meeting of Shareholders.
(10) Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 333-53775.
(11) Incorporated by reference from the Cross Medical Products, Inc. Annual
     Report on Form 10-K for the year ended December 31, 1996.
(12) Incorporated by reference from the Cross Medical Products, Inc.
     Registration Statement on Form S-2, Registration No. 333-02273.
(13) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended March 31, 1998.
(14) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended September 30, 1998.
(15) Incorporated by reference from the Cross Medical Products, Inc. Annual
     Report on Form 10-K for the year ended December 31, 1997.
(16) Incorporated by reference from our Annual Report on Form 10-K for the
     fiscal year ended December 31, 1998.
(17) Incorporated by reference from our Proxy Statement for the 1999 Annual
     Meeting of Stockholders.
(18) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended March 31, 1999.
(19) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 1999.
(20) Incorporated by reference from our Annual Report on Form 10-K for the
     fiscal year ended December 31, 1999.
(21) Incorporated by reference from our Proxy Statement for the 2000 Annual
     Meeting of Stockholders.
(22) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 2000.
(22) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended September 30, 2000.